Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A raise only helps if it outruns prices, and the real wage change shows the difference. A 4 percent raise with 3 percent inflation is a real gain of about 0.971 percent, not 1 percent, because the two effects compound. On an $80,000 salary, the new pay of $83,200 buys about what $80,777 bought before. When inflation exceeds the raise, the same arithmetic shows a pay cut, even though the paycheck is bigger.
Before you rely on it
What to check
Use the inflation rate that fits your own spending, which can differ from the headline figure. Rent, food and fuel may have moved more or less than average.
The common error
Where people go wrong with real wage calculator
Subtracting inflation from the raise and calling it exact. The precise figure divides one plus the raise by one plus inflation, and the gap grows with larger numbers.
Sensitivity evidence
How nominal raise changes the real wage change
| Nominal raise | Real wage change | Inflation-adjusted new salary |
|---|---|---|
| 2.0% | -0.971% | $79,223 |
| 3.0% | 0.000% | $80,000 |
| 4.0%worked example | 0.971% | $80,777 |
| 5.0% | 1.9% | $81,553 |
| 6.0% | 2.9% | $82,330 |
Every input, tested
Which input moves the real wage change most
| Input | Tested from | To | Real wage change at each end | Swing |
|---|---|---|---|---|
| Nominal raise | 3.0% | 5.0% | 0.000% to 1.9% | 1.9% (200%) |
| Inflation rate | 2.0% | 4.0% | 2.0% to 0.000% | 2.0% (202%) |
| Current salary | $72,000 | $88,000 | 0.971% to 0.971% | none |
Two variables at once
Real wage change by nominal raise and inflation rate
| Nominal raise \ Inflation rate | 1.0% | 3.0% | 5.0% |
|---|---|---|---|
| 2.0% | 0.990% | -0.971% | -2.9% |
| 3.0% | 2.0% | 0.000% | -1.9% |
| 4.0% | 3.0% | 0.971% | -0.952% |
| 5.0% | 4.0% | 1.9% | 0.000% |
| 6.0% | 5.0% | 2.9% | 0.952% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Current salary | $80,000 |
| Nominal raise | 4.0% |
| Inflation rate | 3.0% |
| Real wage change | 0.971% |
| Inflation-adjusted new salary | $80,777 |
Where the inputs come from
Current salary is your annual pay, nominal raise is the percentage increase you received, and inflation rate is the rise in prices over the same period. Use the inflation figure for the same period as the raise, such as the year-over-year change in the consumer price index, from the Bureau of Labor Statistics. For several years, repeat the calculation, or use the cumulative figures.
When the result stops applying
The measure uses average inflation, and your own costs may differ: renters and drivers can feel more or less than the index. It ignores changes in taxes and benefits. A raise that comes with higher health premiums or a longer commute can reduce real income. Region matters, since inflation varies by city.
What to compare it with
See the raise itself on the raise calculator, and price growth on the inflation calculator. The real yield page applies the same idea to investments. The take-home pay calculator shows what remains after taxes and deductions.
People also ask
Frequently asked questions
What is a real wage?
Pay adjusted for inflation, showing what your earnings can actually buy compared with an earlier period.
How do I know if I got a real raise?
Subtract the inflation rate from your raise, or more precisely divide one plus the raise by one plus inflation. A positive result is a real gain.
Which inflation number should I use?
The year-over-year change in the Consumer Price Index for your period, or a regional index if available.