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Americans have gotten raises. But with inflation, is it really a raise?


Wages have been rising all over the country, and prices have been rising, too. So workers are wondering, are their raises for real? Stacey Vanek Smith and Julia Ritchey from NPR's daily economics podcast The Indicator explain the money illusion.

STACEY VANEK SMITH, BYLINE: Kristal Moore lives in Hendersonville, N.C. She's 52 years old, and she works a lot. She has a lot of jobs.

JULIA RITCHEY, BYLINE: Yeah. Kristal is a gig worker, and over the last couple of years, she's driven for ride-share companies, also delivering meals and groceries for Instacart and Uber Eats.

VANEK SMITH: And the money was good. Including tips, Kristal would take home around $20 for each delivery.

KRISTAL MOORE: And, of course, that sounds good until you factor in the gas.

RITCHEY: And those rising prices started taking bigger and bigger bites out of Kristal's earnings and outpacing the rise in tips and pay she was getting. And she realized she had less money.

MOORE: I am still able to make it, so to speak, and pay my bills, but it's a little more of a struggle.

RITCHEY: Kristal is experiencing something that millions of workers are going through all over the country. Pay is going up, but that higher pay is not translating into actual wealth. It's the money illusion.

VANEK SMITH: The money illusion - so this is a term coined by economist Irving Fisher in the 1920s, and it has to do with the difference between so-called nominal wages and real wages.

MICHELLE HOLDER: Nominal wages, which are, you know, wages that the everyday Joe and Joanna gets for their work.

RITCHEY: Michelle Holder is an economist and the CEO of the Washington Center for Equitable Growth. So nominal is the actual dollar amount, the numbers you see on your paycheck. As people, we tend to respond mostly to this, to the number on our paychecks. And in nominal terms, Kristal was getting more money from her deliveries. But she wasn't feeling a lot richer.

VANEK SMITH: And the reason for that was because even though Kristal's nominal pay was rising, her real pay was not.

HOLDER: If we look at what economists call real wages, which are adjusted to reflect the true buying power...

RITCHEY: Buying power - essentially adjusted for inflation. Michelle points out that for workers in hospitality, wages are up more than 10% over last year. Some workplaces are reporting wages up by more than 15 or 20%.

VANEK SMITH: So it would seem that a lot of workers in the U.S. are coming out ahead...

RITCHEY: But that depends on a lot of factors, like where you live, what you do and what your personal expenses are.

VANEK SMITH: Yeah. I mean, take Kristal Moore. She has to buy gas for her work.

MOORE: Got all the envelopes.

RITCHEY: All right. You do have a big stack of envelopes.

MOORE: Oh, yeah. I keep track of everything.

RITCHEY: Kristal always gets her gas at the same place. She has, you know, like, one of those little loyalty cards.

MOORE: Date was September 23 of this year. It was 22.47 to fill up my tank.

RITCHEY: 22.47 in September - and less than a month later...

MOORE: October 19 of this year, and it was 31.29 to fill up my tank.

RITCHEY: That's...

MOORE: Quite an increase.

VANEK SMITH: And it's like this for a lot of workers across the country. I mean, right now, there are a lot of forces that are disrupting our economy, and a lot of them are hopefully temporary. And so when the dust settles on all of this, we will know if our raises are real or if they're an illusion. Stacey Vanek Smith.

RITCHEY: Julia Ritchey, NPR News.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

Stacey Vanek Smith is the co-host of NPR's The Indicator from Planet Money. She's also a correspondent for Planet Money, where she covers business and economics. In this role, Smith has followed economic stories down the muddy back roads of Oklahoma to buy 100 barrels of oil; she's traveled to Pune, India, to track down the man who pitched the country's dramatic currency devaluation to the prime minister; and she's spoken with a North Korean woman who made a small fortune smuggling artificial sweetener in from China.