What is the difference between real labour cost and real wage?

Answer 1

Any real variable is a variable whose value has been adjusted for inflation. So the real wage is simply the per unit price of labor adjusted for inflation and real labor cost is the total expenditure on labor adjusted for inflation.

For example, suppose that the current price level is 25% higher than it was in some base year, the nominal wage rate is $100/unit of labor and the number of units of labor employed is 500 units. Then the real wage rate in the current period (relative to the base year) is 100/1.25=$80/unit of labor and the real labor cost is 100(500)/1.25=$4,000. This means that, in the current period, each unit of labor costs what could have been bought with $80 in the base year and the total expenditure on labor costs what could have been bought with $4,000 in the base year.

Answer 2

Real labour cost takes into account marginal product of labour (as a function of a production technology parameter, and other 'deep' parameters such as labour share in the production of a good) of the worker. A profit optimizing firm will set equal the real wages (nominal wages divided price level) to marginal product of labour. In practice, as prices and/or nominal wages are 'sticky' (due to say annually negotiated nominal wages or costs of adjsuting prices w.r.t. each and every shock) there will be a gap between the real labour cost and real wages, therefore 'equilibrium' outcome will not be first best.

Answer 3

cost push inflation is when the cost of production rises, thus suppliers are able to supply less than what they otherwise would be able to, before the cost rise. they then employ lesser workers, thus leading to unemployment. it is a concept that illustrates clearly, how the philips curve won't work. real wages are defined as (real wages = nominal wages/price level). since wages are part of the production costs, one could argue for that when real wages rise, costs of production rises too.

Answer 4

I would think real wage is what the employee is paid. For example, $50,000 is his salary, or his wages.

I think real labor cost is the fully loaded cost of that employee (ie. including benefits, etc.)

So, if his real wage is $50,000, and the employer has to incur another $20,000 in expenses for that employee for things like medical benefits, then I would say the real labor cost is $70,000.

Answer 5

if you look at what is taken out of your wages you will see quite a few items depending where you live. the employer not only pays your wage, but also has to match those same deductions out of their pocket so in essence you are only footing half the deductions taken out while the employer is paying the other half.