The Big Mac isn't just a greasy hallmark of modern technological wizardry. It's also a tool for economists to measure the wealth of nations.
The Big Mac is a triumph of technology.
For thousands of years, families devoted the majority of their lives to food. Most of their waking hours was spent growing and harvesting crops, and most of their income from growing and harvesting went right back into eating. In the late preindustrial era, unskilled laborers worked grueling hours in fields to earn an income that could often barely feed their family. As Gregory Clark explained in his book A Farewell to Alms, up until the 1700s, the English diet consisted, monotonously, of bread and beer, won only after hours that would make a modern i-banker blush. Food output per person was so meager that "British farm laborers by 1863 had just reached the median consumption of [primitive] forager and subsistence societies."
The Big Mac, by contrast, takes very little work for any one person. It is a product of as much automated manufacturing as human labor. Even U.S. food-prep workers, by some measures the poorest-paid major occupation in America, earn enough to buy more than two Big Macs -- that's 1,100 calories -- in just an hour of their work.
McDonald's is a restaurant, but it functions quite like a factory. Labor is supported by a deep well of technological innovation, such as vacuum packing, exceptional preservatives, deep freezing, vibrant artificial flavors, and high-speed microwaves. Workers assemble specific parts at great speed to deliver dependable and replicable products. "[McDonald's doesn't] put something on the menu until it can be produced
at the speed of McDonald's," CEO James Skinner said in 2010, sounding not unlike Henry Ford from a century earlier.
And now, in a research paper released last week, Princeton's Orley C. Ashenfelter has done something truly fascinating with the Big Mac. He used the world's most famous sandwich to that help us answer one of the trickiest questions in all of economics:
How do poor nations get rich?
The world's nations are diverse in ways that defy easy comparisons. But at least 118 of them share something similar. They have a McDonald's. In every McDonald's around the world, workers perform similar tasks with similar shipped ingredients stored in similar freezers and prepared according to similar international protocol. This matters to economists, because McDonald's offers an international apples-to-apples comparison of wages and prices.
Ashenfelter comes up with a clever way to measure wage growth, or purchasing power parity across the globe. By recording wages and Big Mac prices over time, he computes how many Big Macs one can buy on an hour's salary in the U.S. vs. Western Europe vs. the developing world. Tracking Big-Macs-per-Hours-Worked, he says, should tell us who's really rich, who's getting rich, and who's not.
As it turns out, Big Macs and McWage explain three of the most important ideas in international economics: (1) The Rise of the West; (2) The Rise of the Rest; and (3) The Great Recession.
The Rise of the West. Countries get rich because they become particularly skilled in certain industries that they can sell. So why are McDonald's workers in the U.S. or Western Europe earning up to 10-times more than in India, China, or Latin America? It's not that Chinese and Chileans are less skilled at heating burgers. Rather it has everything to do with the economy outside of McDonald's kitchens.
The gap between poor and rich nations has bedeviled economists for
decades. But one elegant explanation, known as the Balassa-Samuelson hypothesis, says it comes down to workers productivity in sectors that can "trade" their goods and services abroad. If a country gets better
at making, say, cars it can sell to foreigners for money, it gets richer. As
income and investment
flows into a country, incomes rise and prices rise across the board. People have more money to buy burgers. The price of burgers rises, and the price of workers who prepare those burgers rises too.
Ashenfelter finds evidence for this elegant theory in his data, which demonstrates that developed countries, including the US, Canada, Japan, and Western Europe have similar "McWages," and advanced countries' McDonald's workers can all buy between two and three Big Macs with each hour of work. In parts of the Middle East, Latin America, and India by contrast, an hour working at McD's will hardly buy you a third of a burger. That's a great divergence of wealth on the order of 10x. But it's not the end of the story ...
The Rise of the Rest: For the last few decades, real income growth has been flat in many developed countries, as manufacturing and other middle class jobs went overseas and fed rising living standards in other countries. McDonald's can tell this story, too.
Wage growth was "entirely confined to the developing countries
of Russia, India, and China during the period 2000‐2007," Ashenfelter writes. This graph shows percentage-growth in Big Macs-per-hour-of-work in the last decade. It's a striking picture of flat purchasing-power growth in the developed world juxtaposed to a gosh-wow boom out of China, India and Russia (which started the decade in a recession and got a big lift from oil prices through 2007). Upshot: it's not just topline GDP growth that's exploding in the developed world. Middle-class families can buy more for each hour of work.
The Great Recession: After this period of remarkable growth among low-wage countries, the financial crisis has had an uneven effect on wealth. Once again, McDonald's explains the world. In the graph below, we're looking at Big-Macs-per-hour-worked, from 2007 to 2011. This time, we've got a scattershot of messy growth complicated by wild commodity inflation, which raises the price of burgers and also raises wages in commodity-rich Russia and Latin America.
Real wages were remarkably similar across countries for most of world history, and "only modestly above
subsistence levels," Ashenfelter writes in the conclusion to this paper on Big Macs, McWages, and the wealth of nations. Then the industrial revolution happened. Some parts of the world saw explosive wage growth, while others saw nothing, or worse.
The Big Mac did not rescue the world from the Malthusian Trap. McDonald's did not single-handedly proclaim the end of the pre-industrial age. And yet fast-food sandwiches represent a microcosm of industrial efficiency, and their price offers a keyhole into the world of wages and the growth of wealth. Economists have studied wages through the millennia and seen no growth. They have studied wages across the world and been flummoxed by the diversity of goods and services, which complicate all easy comparisons. But today, McDonald's and the Big Mac are both a symbol of our wealth and tool for comparing wealth, burger-to-burger, across time. That iconic double-decker, 500-calorie sandwich enriches us in more ways that one.
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