Direct answer
A worked example of wage growth is a fully specified calculation that compares a wage measure in one period with the same measure in a later period, then expresses the change as an amount and a percentage. You choose exactly what “wage” means (for example, average hourly pay, median pay, or total earnings per worker), which population is included, and whether the figures are nominal (not adjusted for inflation) or real (inflation-adjusted). The “worked” part comes from showing the arithmetic and listing every assumption.
Mechanism and definition
Wage growth generally means how wages change over time. The core mechanics are simple:
- Pick the wage measure: commonly either hourly wages (pay per hour) or earnings per worker (which can be affected by hours worked).
- Pick the time endpoints: for example, Period 1 and Period 2.
- Use a consistent definition across both periods (same measure, same population scope, same units).
- Compute:
- Change (amount) = Wage t2 − Wage t1
- Growth rate (percent) = (Wage t2 − Wage t1) / Wage t1 × 100%
If you adjust for inflation to get “real” wage growth, you must also choose a specific price index and apply consistent inflation adjustment to both periods. Otherwise, you are measuring nominal wage growth, which mixes changes in pay with changes in prices.
Evidence or example (with explicit assumptions)
Worked example (nominal, average hourly pay):
Assumptions
- Wage measure is average hourly wage for the same group of workers.
- Period 1 is one year before Period 2.
- The group and the definition of “average” stay consistent.
- No inflation adjustment is applied (so this is nominal).
Given
- Average hourly wage in Period 1: Wage t1 = 20.00 (currency units per hour)
- Average hourly wage in Period 2: Wage t2 = 21.50 (currency units per hour)
Step 1: amount change
- Change = 21.50 − 20.00 = 1.50
Step 2: growth rate
- Growth rate = (1.50 / 20.00) × 100% = 7.5%
Interpretation (non-predictive)
- Under these assumptions, wages increased by 1.50 currency units per hour, or 7.5%, between the two dates for the chosen worker group.
Worked example (real wage growth, still a fully specified calculation):
Additional assumptions
- You have an inflation adjustment factor derived from a chosen price index.
- Example uses a single inflation adjustment value between the periods.
Given
- Nominal hourly wage in Period 2: 21.50
- Inflation between Period 1 and Period 2: prices increased by 5.0%
- Therefore, the real value of the Period 2 wage in “Period 1 prices” terms is computed by dividing by 1.05.
Step
- Real-adjusted Period 2 wage = 21.50 / 1.05 = 20.476…
Real growth calculation (nominal Period 1 is already in Period 1 prices)
- Real change = 20.476… − 20.00 = 0.476…
- Real growth rate ≈ (0.476… / 20.00) × 100% ≈ 2.38%
Key point
- The same nominal wages can show different wage growth depending on whether you adjust for inflation and how you do it.
Limitations and risks (material failure modes)
- Nominal vs real mismatch: If you compare nominal growth to an inflation-adjusted benchmark (or vice versa), the interpretation becomes inconsistent.
- Changing composition of workers: Average wages can rise because higher-paid workers are more common, not because any individual’s wage changed. A “worked example” is only clean if the population is held fixed.
- Hours worked effects: If your measure is earnings per worker rather than hourly pay, changes in working hours can create wage growth signals that reflect labor supply or scheduling, not pay rates.
- Index choice and timing: For real wage growth, different price indices or different timing conventions for inflation can produce different real growth numbers.
- Data consistency across periods: Revisions, changing survey methods, or changing definitions of “average” can alter the measured wage growth even if underlying pay behavior did not.
Verification and next question
To independently verify a wage growth example, you should be able to reproduce the arithmetic from the stated wage measure, the two time endpoints, and the chosen adjustment method (nominal only or real using a specified inflation adjustment).