Real income

Das Realeinkommen ist eine volkswirtschaftliche Kennzahl, welche die reale Purchasing power des Geldes unter Berücksichtigung der Inflation darstellt. Also welche Gütermenge tatsächlich mit dem Nominaleinkommen erworben werden kann.

Definition / explanation

Real income describes the amount of products and goods that can be bought on the market with the help of nominal income. The calculation takes into account such aspects as the price level, inflation and local conditions. The amount determined in this way is price-adjusted and provides meaningful information because it shows the actual purchasing power of the economy.

This key figure is particularly interesting in the case of changes in income, because nominal increases (e.g. salary increases for an employee) with simultaneous inflation have a significantly lower impact on real net wages.

Calculation and meaning

Das Realeinkommen stellt eine wichtige Komponente bei der volkswirtschaftlichen Gesamtberechnung dar. Als Grundlage muss dabei immer das Nominaleinkommen herangezogen werden. Vom Nominaleinkommen wird der aktuelle Price index dividiert. Als Ergebnis steht dann das Realeinkommen fest.

Real income = average nominal wage / price index

Economists need this value to determine actual purchasing power. Nominal income alone cannot say anything about purchasing power, as this is influenced by many components and can be different in every region.

In large cities such as Munich, Cologne or Hamburg, for example, the nominal income is worth significantly less than in rural areas, where the cost of living is significantly lower.

What is the same in every area, however, is inflation, which is therefore always included in the calculation with the same value. In the end, there is always a real income that corresponds to the region and shows the actual purchasing power quite clearly.

a notice - It is quite easy to find out what your real income is. All you have to do is divide the annual income by 12. Inflation must now be deducted from the result obtained in this way. So you know what your own income is really worth in the end.

Summary

  • real income is calculated using nominal income
  • inflation and other values must be included in the calculation
  • shows the actual purchasing power of an economy
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