What your paycheck can actually buy, after accounting for inflation, not just the number on it.
Real wages measure earnings after adjusting for inflation, as opposed to nominal wages, which is just the raw dollar figure on a paycheck. A 4% pay raise sounds good until you learn prices rose 5% that same year, meaning real wages actually fell and that paycheck buys less than it used to, even though the number on it went up. Economists watch real wage growth closely because it's a much better gauge of whether households are actually getting ahead than the nominal pay figure alone.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.