Nominal salary

economic-dictionary

The nominal salary is the amount of money received by an employee, which appears on the payroll, as a result of the work carried out during a certain period of time.

The nominal salary is simply that, the amount agreed to pay for the services rendered. So, if the salary for the services you provide is 900 euros, then your monthly salary is 900 euros. So this is the amount that appears on your monthly payroll.

When taxes, insurance, contributions, etc. are deducted from the nominal salary, we then have what is called the net salary. For this reason, many also speak of the gross salary, that is, when the nominal salary has not been adjusted for inflation or taxes.

In many economies, what is called the minimum wage is established. The governments, together with representatives of the different companies that make up the national economy, carry out conciliations.

The purchasing power of wages is mostly taken as a reference to define minimum wages to be paid. This, as a way of adjusting the nominal salary from time to time.

Remuneration

Characteristics of the nominal salary

The main aspect to highlight of the nominal wage is that this, by its nature, does not reflect in itself, the impact that inflation processes have.

Another important historical characteristic to highlight about this salary is that the increases in nominal salaries may not compensate for the loss of purchasing power that the salary experiences over time.

Let's say that at the beginning of the year you are receiving a nominal salary of 800 euros per month and inflation reports an increase in its level for that period. Let's also say that at the end of years you continue to receive 800 euros per month. It turns out then that your nominal salary has not decreased, but has remained at its level. However, due to the increase that has occurred in the price of goods and services, you will no longer be able to purchase the same amount of them. For example, if a loaf of bread costs $ 1 at the beginning of the period and your nominal salary is $ 800, you can buy 800 loaves of bread monthly. That is, assuming you only buy bread. Whereas if the price of a loaf of bread rises to $ 1.50 and that amount remains at $ 800, then you can buy only 533 loaves of bread.

Therefore, the nominal salary does not reflect the importance of the acquisition of the goods and services that we consume. For salary to reflect such an impact, the concept of real salary must be used. That is, the nominal wage adjusted for inflation.

Nominal salary and gross salary

Although they are practically identical concepts, the first of them is usually used in terms of adjusting for inflation. Meanwhile, the second is usually used in terms of taxes. That is, gross salary is a net salary, as a nominal salary it is a real salary.

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