NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Comparing Real Wages

Real wages [measured as] ... Big Macs per Hours Worked (BMPH) ...range from 3.09 in Japan to 0.35 in Latin America and India.

In Comparing Real Wages (NBER Working Paper No. 18006), Orley Ashenfelter notes that real wage rates are important indicators of both living standards and labor productivity, but are difficult to measure accurately. He then reports on the results of a decade-long project designed to estimate real wages by studying the hourly worker wages at McDonald's restaurants in over 60 countries. The findings suggest that workers in India, China, Latin America, and the Middle East earn 10 to 15 percent of what workers earn in the developed countries. Workers in Russia, Eastern Europe, and South Africa face wage rates that are 25 to 35 percent of those in developed countries. These differences are attributable to national economic organization, not to differences in skill or human capital.

Defining the wage of a crew member at McDonald's in each country as the "McWage", Ashenfelter calculates a rather unconventional measure of real wages by dividing the McWage by the price of a Big Mac -- in other words, the Big Macs per Hours Worked (BMPH) estimate of real wage rates. These estimates range from 3.09 in Japan to 0.35 in Latin America and India. The developed countries, the United States, Canada, Japan, and Western Europe have similar BMPH real wage rates: workers earn between two and three Big Macs per hour.

Between 2000 and 2007, the BMPH real wage declined slightly in the United States and Canada, but remained constant in Japan, grew by over 50 percent in China and India, and rose by over 150 percent in Russia, which was recovering from a severe financial crisis in the late 1990s.

In most countries, BMPH real wage growth stalled between 2007 and 2011. BMPH real wages fell in the United States, Canada, South Africa, India, and Japan, and remained constant or grew slightly in Eastern Europe, the Middle East, and Latin America. BMPH real wages only grew in China, Russia, and Eastern Europe during those years.

--Linda Gorman

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