You will have heard to the Big Mac index which was developed by The Economist magazine. It shows the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries. Reading the WSJ, Orley C. Ashenfelter of Princeton University has come up with McWages which shows the number of minutes a McDonald’s employee needs to work in each country to buy a Big Mac. Ashenfelter states that McDonald’s workers in most countries perform similar tasks to produce an homogeneous product – the Big Mac. So by calculating the amount of time an employee needs to work to afford a Big Mac you can show how wages differ across countries. Poorer countries tend to have McDonald’s employees working longer than their counterparts in the developed world. In China you would have to work 85 minutes as compared to 27 minutes in the US. Workers in India and China saw improvements between 2000 and 2007. While the real wage — or Big Macs per hour worked — was virtually unchanged in developed countries during the period, China’s and India’s real wages grew 9% and 8% per year, respectively.
Ashenfelter also notes a worrying effect of the financial crisis. Between 2007 and 2011, the growth of real wages slowed in China, while Indian workers actually lost ground — going from 168 minutes in 2007 to about 195 in 2011. The U.S. and Western Europe lost ground during the period as well.
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