An extension of the Big Mac Index

Conversable Economist

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.

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  • Carver Media Network

    Wonder how McBlomfield would work out?

  • Peter Dunn

    This was posted up on the FT’s Alphaville yesterday so I took the opportunity to send it to a mate who just happens to be in Cabinet. Next time there is a discussion on minimum way I hope it’s referenced to show the gap between NZ minimum wages and productivity

  • AngryTory

    This is mean about the economy – its not just the minimum wage effect.

    For NZ this demonstrates what I’ve been saying for years –
    to be competitive, NZ needs wages to drop by about half, 
    and hours worked to go up to say 60hpw average
    going to a six day week, sundayizing all public holidays
    and canceling the stupid four-weeks leave.

  • johnbronkhorst

    and the unions wonder why we have lower wages….we have lower productivity. Work harder, output more, company profits up, wages up!!!…No brainer really.

    • AngryTory

      NZ “workers” – really socialist bludgers – don’t deserve higher wages.
      or pretty much any wages at all really.

  • Cricklewood

    I reckon the productivity based score is partly due to lower population density, there a macca.s around servicing towns of 14000 people or less. You still need x number of staff to run the gear but less customer throughput due to lack of population. Be more interesting to know how store profitability/roi.s compare. I would say im my experience the food hits the tray here as quick as anywhere else I’ve had maccas overseas….

    •  This is the first reasonable comment I have seen on this page.