Orley Ashenfelter extends the Big Mac index to look at Wages…or as he calls it McWages…the wage rates of people in the same jobs across the globe. His conclusions are interesting, particularly the skewing effect of a minimum wage law:
Here is an illustrative figure. The horizontal axis shows the “McWage ratio”: that is, the U.S. McWage is equal to 1.00, and the McWages in all other countries are expressed in proportion. The vertical axis is “Hourly Output Ratio.” This is measuring output per hour worked in the economy, again with the U.S. level set equal to 1.00, and the output per hour worked in all other countries expressed in proportion. The straight line at a 45-degree angle plots the points in which a country with, say, a McWage at 20% of the U.S. level also has output per hour worked at 20% of the U.S. level, a country with a McWage at 50% of the U.S. level also has output per hour worked at 50% of the U.S. level, and so on.
The key lesson of the figure is that the differences in McWages across countries line up with the overall productivity differences across countries. The main exceptions, in the upper right-hand part of the diagram, are countries where the McWage is above U.S. levels but output-per-hour for the economy as a whole is below U.S. levels: New Zealand, Japan, Italy, Germany. These are countries with minimum wage laws that push up the McWage.
