Monday, August 5, 2013

The Big Mac as a Tool to Compare International Salaries

When I was just new here in Cebu, my landlord (an Iranian expat married to a Filipina) and I were having a discussion about economics. He used as an example the amount of time a Filipino working at McDonald’s must work in order to buy a Big Mac, compared to the time an American worker must work.

I thought it was an interesting comparison, and it turns out others have had the same idea: here’s an article from The Wall Street Journal about an economist who did a study on the subject (and here's the original study).
In order to calculate a real wages across countries Orley C. Ashenfelter of Princeton University found an excellent example using McDonald’s employees. In his paper published by the National Bureau of Economic Research, Ashenfelter notes that McDonald’s workers across the globe by design are asked to perform the same tasks to build the same product: a Big Mac. By calculating how many hours of work it takes an employee to earn enough to afford a Big Mac, he can show how wages change across countries. 
As one might expect, poor countries have to work longer to afford the same goods. For example, in 2011 a worker in a McDonald’s in China would have to work 85 minutes to afford a Big Mac. That compares to just 27 minutes on the job before an American employee earns enough to buy the sandwich.
The Philippines is not broken out individually in the study, so let's take a shot at doing so.

The minimum wage in Cebu City is 327 pesos per day. Since law enforcement in all areas of life here is spotty at best, many companies here pay far less. But foreign companies are watched closely, and a company as highly visible as McDonald’s (or their local franchisee) would be unlikely to take any chances, so we will assume they comply with the law.

However, note that the wages are per day, rather than per hour as in the US. Employers here generally require long days. The laundry I use, for example, is open 7am-7pm, with apparently the same staff all day; construction projects go on well into the evening. Ten hours seems to be a normal working day here, so the odds are that a McDonald’s employee makes about 33 pesos/hour. Nonetheless, I’ll use an eight-hour day for calculation purposes, since I don’t know that for sure; and on that basis the pay is 41 pesos/hour.

Recent articles I’ve read about ‘living wage’ protests say that McDonald’s US employees mostly make $7.25/hour. This study says $7.33, which is close; we’ll use the $7.25 figure.

A Big Mac in the US is $3.99 according to things I’ve read, meaning that an employee must work just over a half hour, thirty-three minutes*, to buy one. A Big Mac here is 125 pesos (I checked yesterday), so a Philippine employee must work just over three hours, 183 minutes. So Philippine workers get about one-sixth the effective pay of an American.

What’s more remarkable is that, even compared to China, the Philippine workers are poorly paid – the Philippine workers must work twice as long as those in China to buy a Big Mac.

* The quote from The Wall Street Journal said twenty-seven minutes, but that was based on the $7.33 average wage, and on a lower price for the Big Mac. I’ve tried to tilt all my assumptions against the US and toward the Philippines to avoid being accused of making the Philippines look bad.

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