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FOR more than 25 years, The Economist has been producing Big Mac indexes. At last, this burgernomics thing seems to be catching on. In a new paper, Orley Ashenfelter and Stepan Jurajda take the economic potential of the McDonald's menu a step further, adding to the mix wage data from stores around the world. This week's Free exchange column explores their results. First, a word about the economics underlying their analysis.

Their work, like The Economist's Big Mac index, grapples with the tricky business of international price and wage comparisons. At its heart is the theory of purchasing-power parity (PPP). Economists reckon the price of a good should not vary much across efficient markets. Otherwise people would buy in cheap markets and sell in dear ones until prices equalised. PPP generalises this “law of one price”. Over the long run, it suggests, exchange rates should adjust so a basket of goods costs the same in different countries. If that basket is whimsically taken to contain only a Big Mac, then burger prices may be used for back-of-the-napkin currency valuations. In January a Swiss Big Mac cost $6.81, compared with $4.20 in America and just $2.44 in China, hinting at an overvalued franc relative to the dollar and an undervalued yuan.

Economists use PPP to provide better comparisons of welfare across countries than can be gleaned from simply converting wages at market exchange rates. Exchange rates should adjust so that workers making traded goods are paid according to their productivity. But firms that sell non-traded goods and services must compete with firms in the tradable-goods sector for labour. So a country with high-productivity exporting firms will have high wages across all sectors—including those, like hair-cutting, where productivity differences between rich and poor countries are small. As a result, the cost of living is higher in rich countries, and simple exchange-rate adjustments overstate real welfare differences. On an exchange-rate basis, the average American is 35 times richer than the average Indian. On a PPP basis, however, taking account of the lower cost of living in India, American income is just 13 times higher.

Mssrs Ashenfelter and Jurajda collect wage data from McDonald's stores in over 60 countries (McWages). Adjusting those wages for exchange rates provides an excellent comparison of the cost of hiring the labour needed to do simple, well-defined tasks. Then take those McWages and divide by the local price of a Big Mac and you have a surprisingly simple yet powerful measure of PPP-adjusted wages.

Wage (and, therefore, productivity) gaps between rich and emerging economies remain large, but the welfare gaps, as measured by the PPP-adjusted 'Big Macs per hour' measure, are a bit narrower. And getting narrower still, in part because of rich-world stagnation:

Between 2000 and 2007 America's McWage rose by 13% while the Big Mac price jumped by 21%, resulting in a net tumble in the BMPH real wage of 7% (see chart, right panel). Meanwhile, the BRICs advanced as McWages grew faster than Big Mac prices. The BMPH jumped by 53% in India, 60% in China and 152% in a Russian economy recovering from financial crisis in 1998. The going has been slower since then. Russia and China managed gains from 2007 to 2011. Most others did not, as food prices rose faster than McWages. Data gathered this summer for the 2012 calculations may show a further slowdown. Bad news for an emerging world still hungry for better living standards.

One can derive an awful lot of insight from a burger.

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