DILEMMA Price of a Big Mac™ ‘The McDonald's Corporation is the leading global foodservice retailer with more than 30,000 local restau: rants serving nearly $0 million people in more than 119 coun tries each day. This global presence, in addition to its con- sistency in food offerings and restaurant operations, makes McDonald's a unique and attractive setting for economists to ‘make salary and price comparisons around the world, Because the Big Mac™ hamburger is a standardized hamburger pro- duced and sold in virtually every McDonald’saround the world, the Economist, a weekly newspaper focusing on international politics and business news and opinion, as early as 1986, was compiling information about Big Mac prices as an indicator of cachange rates. Building on this idea, researchers Ashenfelter and Jurajda proposed comparing wage rates across countries and the price of a Big Mac hamburger. Shown below are Big Mac prices and net hourly wage figures (in USS. dollars) for 27 countries. Note that net hourly wages are based on a weighted average of 12 professions Big Mas Net Hourly Pri Wage Country (Us.s) US$) Argentina 1 170 Australia 1.86 7.80 Ben 14a 205 Britain 34 120 Canada 221 9.38 Chile 196 2.80 China 120 240 Ceech Republic 1.96 240 Denmark 409 1440 Euro area 298 959 Hungary 219 3.90 Indonesia La 130 218 13.60 133 30 218 2.00 (continued) hn 2 Predicting International Hourly Wages by the BigMac Net Hourly Price Wage (Ws.s)__ (US.S) 222 6.80 224 1.20 182 220 Russia 132 260 Singapore 185 5.40 South Africa 1.85 3.90 South Korea 2.70 5.90 Sweden 3.60 10.90 Switerland 4.60 17.80 Thailand 1.38 170 Turkey 234 3.20 United States 2.71 14.30 Managerial and Statistical Questions 1. Is there a relationship between the price of a Big Mac™ and the net hourly wages of workers around the world? If 50, how strong is the relationship? 2. Is it possible to develop a model to predict or determine the net hourly wage of a worker around the world by the price of a Big Mac hamburger in that country? If 99, how good is the model? 3. Ifa model can be constructed to determine the net heurly wage of'a worker around the world by the price of a Big Mac hamburger, what would be the predicted net hourly wage of a worker in a country if the price ofa Big Mac hamburger was 83.002 Sarees: McDonalds home Web sizeat:tp:/wwse incdonalds com/corplabout, hum; Palko, Michael % and Patricia 5. Pollard, “Burgernonsicr= A Big Mac™ ‘Guide to Purchasing Power Party eearch publication by the 8. Louis Fed. eral Reserte Bank at: hrtp/research stlousfed.org/publcationsreviewt311 Dakkii pdf Asienfelter, Orley and Jurajda, Stepdn. “Cross-Country Compar inons of Wage Rates:‘The Big Mac Index.” unpublished manuscript, Princeton University and CERGEEWCharles University, Qctoher 20013 The Econstsst, ac bttp-iwweeeconomist.convindex ht,