(Update, 2: Forbes contributor Tim Worstall argues that the answer to the question is simple: The cost of a Big Mac-at least to consumers-probably wouldn't go up at all. What a Big Mac would cost if McDonald's workers were paid $15 an hour remains an unanswered question, but it would almost certainly not be what Morelix says.) And that, as CJR.org's Ryan Chittum rightly points out, makes a big difference-as do a number of other factors excluded by Morelix. (Update: Unfortunately, Morelix did not, as Forbes' Morgan Brennan first pointed out after publication, factor the company's franchisee model into his calculations. The research assistant said his math is based on increases in salaries and benefits for every McDonald's worker, from minimum wage line cooks paid $7.25 an hour to CEO Donald Thompson, who made $8.75 million in 2012. Morelix said that his number crunching assumes profits and other expenses are kept at the same absolute number. McDonald’s is one of the most global corporations, and looking at their pricing structure across the world can tell us a lot about their business.īut in terms of telling us about the value of different nations’ currencies, the Big Mac Index - like McDonald's fries - should be taken with more than a few grains of salt.Morelix's take: If McDonald's workers were paid the $15 they're demanding, the cost of a Big Mac would go up 68 cents, from its current price of $3.99 to $4.67.īy his estimates, A Big Mac meal would cost $6.66 rather than $5.69, and the chain's famous Dollar Menu would go for $1.17. McDonald’s is a profitable business, and if they can charge more per burger to make a bigger profit in one country than another, they will.Īs it is, the Big Mac Index tells us the price McDonald’s charges for a Big Mac around the world. But while this adjustment may smooth away some of the variation in labor costs, that doesn’t remove the variability of resource costs (including importation) and consumer preferences. The adjusted Big Mac Index for GDP per capita prices a Big Mac at roughly the same in China and America. The Economist attempts an adjustment by GDP per person. If all of these country-to-country variables could be smoothed away, then the Big Mac Index would tell us a lot about the currencies of various nations around the world. In India - which the Big Mac Index again rated as the country with the most undervalued currency ( just as it did in 2013) - their Big Mac (the Maharaja Mac) is made out of chicken, not beef, to cater to India’s Hindu majority that sees cows as holy, and not for eating. And in some countries, it’s not even the same burger. And there are different consumers, willing to pay different prices for the same burger - in some countries McDonald’s is considered an upmarket Western taste, while in other countries it’s considered downmarket junk food. There are different legal frameworks, security costs, and tax structures. In some countries ( like Iceland, which McDonald’s left in 2009) all the ingredients have to be imported in others, they are readily available. The costs of doing business in China and America (and any country) are very different: Different labor, land, raw material, and transportation costs. Does the Big Mac Index suggest they’re right? Lots of people - including former Republican presidential nominee Mitt Romney - have charged China with manipulating their currency so that it stays undervalued. This would suggest that in terms of Big Macs, the Chinese yuan was undervalued by 41 percent at that time. The example that The Economist flags is that the average price of a Big Mac in America in January 2014 was $4.62 in China it was only $2.74 at market exchange rates.
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