Amazon.com agreed to pay its workers \(\$ 20\) an hour in 1999 and \(\$ 22\) an hour in \(2001 .\) The price level for these years was 166 in 1999 and 180 in \(2001 .\) Calculate the real wage rate in each year. Did these workers really get a pay raise between 1999 and \(2001 ?\)

The nominal wage rate is the amount of money paid to employees before adjusting for inflation or changes in the price level. It is important to distinguish this from the real wage rate, which accounts for inflation. In the exercise, Amazon paid its workers \( \$20 \) per hour in 1999 and \( \$22 \) per hour in 2001. These figures represent the nominal wage rates for those respective years. Unlike real wages, nominal wages do not provide an accurate measure of purchasing power over time.

The price level measures the average prices of goods and services in an economy. It is often represented by indices such as the Consumer Price Index (CPI). The price level helps us understand inflation, which is the rate at which the general level of prices for goods and services rises. In the exercise, the price level was 166 in 1999 and increased to 180 in 2001. The changes in the price level are crucial for calculating the real wage rate, as they reflect the change in purchasing power over time.

A real pay raise refers to an increase in the purchasing power of an individual's earnings after accounting for inflation. To determine if workers received a real pay raise, we need to calculate the real wage rate for each year and compare them. Using the formula: \[ \text{Real Wage Rate} = \frac{\text{Nominal Wage Rate}}{\text{Price Level}} \times 100 \] we find that the real wage rate for 1999 was 12.05 (calculated as \( \frac{20}{166} \times 100 \)). For 2001, the real wage rate was 12.22 (calculated as \( \frac{22}{180} \times 100 \)). Since the real wage rate increased from 12.05 to 12.22, it indicates that workers did receive a real pay raise, meaning their purchasing power improved despite the rise in nominal wages and the price level.