The Economist’s “Big Mac index” is a fun way of measuring relative prices in different countries after adjusting for the nominal exchange rate between different countries’ currencies.
“The Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their ‘correct’ level,” says the magazine’s website.
“It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.
For example, the average price of a Big Mac in America in July 2013 was $US4.56; in China it was only $US2.61 at market exchange rates. So the ‘raw’ Big Mac index says that the yuan was undervalued by 43% at that time.”
In a note to clients today, strategists at ConvergEx Group make a slight modification to the calculation.
“We wanted to see where the U.S. minimum wage ranked on an international scale, so we took a fairly well-known indicator — the Big Mac Index — and compared burger prices to minimum wages in different countries,” says the ConvergEx team.
“It’s near impossible to gauge minimum wages apples-to-apples, of course, so we took a different route for comparison: how many hours does it take to earn a Big Mac at minimum wage?”
The chart below shows their findings. Australia, having the highest minimum wage in the world, comes out on top.
“It takes 34 minutes of work to earn a Big Mac in the birthplace of the burger, compared to 22 minutes in New Zealand and France and just 18 in Australia,” say the strategists. “A worker in India would have to work about 6 hours.”
Three weeks ago, fast-food workers across the United States went on strike to protest the country’s minimum wage of $US7.25 an hour.
The protesters called for a more-than-doubled rate of $US15 an hour, which would place the country’s minimum wage second only to Australia’s.