This article was published in the September 1997 South Dakota Labor Bulletin. In order to compare a paycheck across time, we need to standardize that pay to some point in time.
Real pay is nominal pay adjusted for inflation.
Inflation is an increase in price without a corresponding increase in value. For example, more money for doing more work is not inflation, but more money for doing the same amount of work is inflation. The Consumer Price Index, published by the US Bureau of Labor Statistics, is a measure of the average change in the prices paid for a fixed market basket of goods and services purchased for consumption by the population. It is based on the expenditures of all families living in urban areas. Nominal annual pay can be calculated using data from the covered workers and pay program.