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Nominal wages were established by firms and workers, with the belief that the price level will stay constant. - The price level is flexible both upward and downward.
What is Nominal wages?
The wage expressed in dollars is the nominal wage (dollars in the United States). The nominal wage in an economy is adjusted for changes in buying power to produce the real wage. It is determined by dividing the nominal pay by the general level of prices:
Because the real salary accounts for the trade-off between free time and goods and services, workers are more concerned with the real wage than the nominal wage. Real wages are more important to businesses than nominal wages because they reflect the actual cost of acquiring employees. The real minimum wage, or the minimum wage adjusted for inflation, is displayed in Figure 10.3 under the heading "Real Minimum Wage in the United States."
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