(Roughly) Daily

The Economist is repurposing one of its famous indices…

Since 1986 The Economist has produced the Big Mac index as a light-hearted gauge of whether currencies are at their “correct” level. The famous burger is a good test of currency valuations because of its global uniformity and ubiquity. The same properties make it a useful way of comparing international salaries: how many Big Macs, in principle, can a typical worker afford with their wages?

The more conventional way of comparing incomes is to convert wages in different countries into a common currency. But that is misleading because exchange rates are volatile. Moreover, one American dollar goes a lot farther in, say, the Philippines than it does in America itself. The Big Mac helps to solve this problem as a ready-made illustration of purchasing power: it represents a bundle of goods (or, rather, a bun of goods) that is identical everywhere, and so it serves as a yardstick of the real cost of things from country to country.

For the Big Mac wage analysis (the MacWage, for short), we started with full-time, pre-tax earnings in 2023 as reported by the OECD, a club of 38 mostly rich countries. We then made a simple adjustment, dividing wages by the price of a Big Mac—all in local currencies. That gave us the number of burgers that the average full-time worker can buy annually.

The results? Americans can perhaps be forgiven for having somewhat expansive waistlines. Although fast-food prices have rocketed since the pandemic, Americans still earn more greasy calories than any others in our analysis [chart below]. The average American worker takes home the equivalent of 14,000 Big Macs in wages for a year of full-time work. At 590 calories a pop, they could buy enough burgers to keep ten adults fed for a year. The Swiss and Danes come, respectively, second and third in MacWages. At the bottom are Mexican workers, who can afford to buy about 2,500 Big Macs with their average annual wages.

A standard objection to any measure of higher incomes in America is that its workers generally get less time off. To factor this in, we looked at average hours worked, based on data from the OECD and the Conference Board, a business-research group. This yields slightly different results (see chart 2). Americans still get more than enough Big Macs—pulling in the equivalent of about 7.4 per hour on the job—but they drop to third in the ranking. The burger champions are the Danes, who earn 8.1 per hour, followed by the Swiss. Looked at another way, the average Dane works for just seven minutes to make enough money to buy a Big Mac. In Mexico—still at the bottom of the rankings after this hourly adjustment—workers must toil for about 57 minutes.

The MacWage is, of course, far from perfect. Danes may celebrate their top performance, but our measure misses how income taxes (which can surpass 50% in Denmark) eat into their burger budgets. Much else of what goes into the cost of living, from housing to transportation, is also barely reflected in the price of burgers. In a developing country like Mexico, where housing is relatively cheap and American fast-food indulgences relatively expensive, a burger-based wage calculation understates how much stuff an average worker can actually afford. Still, as a quick method for comparing incomes around the world, the MacWage is easily digestible…

The purchasing power of average earners across the OECD: “An alternative use for The Economist’s Big Mac index” from @ECONdailycharts in @TheEconomist.

* Terry Pratchett

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As we supersize that, we might recall that it was on this date in 1979 that the U.S. government agreed to a bailout of the Chrysler Corporation. The smallest of the “Big Three” automakers, but still the 10th largest company in America, Chrysler suffering from a combination a bad management decisions and increased competition from Japanese and German automakers. Facing a $500 million loss for the year (and probably bankruptcy), newly-installed CEO Lee Iacocca asked the government for a guarantee on a $1.5 Billion loan package. In return for detailed plans from Chrysler detailing both how the company would right its ship and how other constituents (employees, suppliers, lenders) would make concessions, the Carter Administration (which feared that a Chrysler failure could lead to a “depression”– and depression-level unemployment– in the auto industry) agreed. In return for its guarantee, the government received stock warrants in the company.

Chrysler did turn itself around: it proceeded to introduce the “K-Car” line, then mini-vans, then the earliest generation of SUVs. The company repaid the government-guaranteed debt ahead of schedule; the Treasury made about $500 million on its warrants.

But of course, nearly thirty years later, in 2008, Chrysler received billions in a new bailout from the U.S. government in the aftermath of the financial crisis that decimated automotive sales over the following few years. Chrysler filed for Chapter 11 bankruptcy in April 2009, before being acquired in total by Fiat in 2014.