Comparing Real Wages using McWages

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Comparing Real Wages using McWages

Orley Ashenfelter Stepan Jurajda Princeton University CERGE-EI

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• living standards – evaluate the success of reforms in a way that is not easy to

manipulate, condition on hedonic job qualities

• price of an identical factor of production – a standardized amount of human capital –

serves

• to measure productivity differences

• as ingredient for

• trade models

• output-accounting decompositions

• efforts to estimate the benefits of migration

Ideal Cross Country Wage Comparisons

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McWages

Entry-level basic-crew jobs at McDonald’s are virtually identical in terms of

• skill input

• technology (productivity)

• hedonic job qualities

• producing identical product

in over 140 countries of the world.

Operations are monitored using 600-page Operations and Training Manual

• McDs do not adjust technology

• pay local market wage (MP)

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• 80 countries in 2014, 65 since 2007, 27 since 2000

• Hourly wages of crew + price of Big Mac

• Data from 2 large cities (2 restaurants per city) + additional cities in India, China, Russia, and the US (10 since 2007, 20 as of 2014)

• Report avg., including regional data with fixed weights

• Corr of median and average wages is 0.99

• Reliability?

– We collected several McWages ourselves

– Big Mac price correlates with the Economist (0.99)

– Corr with other wages from low-income countries

Data Collection

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1.

Is the wage rate the market wage?—

minimum wages may result in wages that do not reflect the market. A

problem in developed countries, i.e.

Denmark, France.

2.

Is the fast food price the market price?—

entry barriers to fast food chains may result in prices that do not reflect the market. Perhaps a problem in

developing countries, i.e. Colombia.

Limitations

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Big Macs per Day (BMPH*8) in 2014

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Big Macs per Day (BMPH*8) in 2014

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0.1.2.3.4.5Density

0 5 10 15 20 25

$ McWage average (80% regional in USA, India, China, Russia)

kernel = epanechnikov, bandwidth = 0.2249

McWages in 2014, pop.-weighted country density

China $1.93 per hour India $0.58

Ukraine $1.41 Russia $4.12

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02468$ McWages

2000 2002 2004 2006 2008 2010 2012 2014

Year

USA USA with regional data India India with regional data China China with regional data Russia Russia with regional data

Evolution of McWages:

2-city average vs. average with regional data

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0.511.522.5Big Mac per Hour

2000 2002 2004 2006 2008 2010 2012 2014

Year

USA USA with regional data India India with regional data China China with regional data Russia Russia with regional data

Evolution of BMPH:

2-city average vs. average with regional data

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Comparison to Other Wage Data

Existing international wage data sets:

• BLS wages in 2012: R-squared = 0.87, N = 31

• BLS wages in 2007: R-squared = 0.83, N = 30

• ILO wages of laborer in 2007: R-squared = 0.96, N

• = 15McWages (rel. to US) typically above manuf. wages (dtto).

We also collected wages in Starbucks (since 2011):

• SbWages in 2014: R-squared = 0.97, N = 36.

• Coffee per hour consistently higher than BMPH in USA, Canada, UK, and Australia (because of

cheaper coffee) and in the Netherlands (because of higher SbWage).

What about changes in ($ nominal) wages over time?

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Argentina

Australia Austria

Belgium

Brazil

Canada

Czech Republic

Denmark

Estonia

Finland

France Germany

Ireland

Israel

Italy

Japan

Korea

Mexico

Netherlands

New Zealand

Norway

Philippines

PolandPortugal

SingaporeSpain

Sweden

Switzerland

Taiwan

USA UK

0.511.52$ BLS Manufacturing Wages

0 1 2 3

$ McWages

Note: All values relative to the US. BLS wages: $ hourly direct pay in manufacturing.

R-squared = 0.87

McWages vs. Manufacturing Wages in 2012

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Argentina

Australia Austria

BrazilBulgaria

Canada

Chile China

Czech Republic

Denmark

France Germany

Greece Hong Kong Indonesia

Ireland Japan

Korea Kuwait

Malaysia Mexico

New Zealand

Peru

Philippines Poland

Portugal

Russia Saudi Arabia Singapore

Switzerland

Taiwan ThailandTurkey

UAE

UK USA

0510152025$ Starbucks Wages

0 5 10 15 20 25

$ McWages

Note: R-squared = 0.97, slope coefficient = 0.97, N = 36. Netherlands is excluded.

McWages vs. Starbucks Wages in 2014

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Argentina

Belgium

Brazil Canada

Czech Republic

France Germany

Italy

Japan

Korea

Philippines

Poland

Singapore

Sweden

Taiwan

UK

USA

.511.522.5$ BLS Manufacturing Wages

1 1.5 2 2.5 3

$ McWages

Note: Value 1 corresponds to no change. BLS wages: $ hourly direct pay in manufacturing.

R-squared = 0.79

Change in McWages vs. Change in Manufacturing Wages between 2000 and 2007

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Australia

Austria Belgium

Brazil

Canada Czech Republic

Denmark

Estonia Finland FranceGermany

Ireland

Israel Italy

Japan

KoreaMexico Netherlands

New Zealand Norway Philippines

Poland

Singapore

Spain Sweden

Switzerland

Taiwan

UK

USA

.511.52$ BLS Manufacturing Wages

1 1.5 2

$ McWages

Note: Value 1 corresponds to no change. BLS wages: $ hourly direct pay in manufacturing.

R-squared = 0.56. Argentina omitted. R-squared with Argentina = 0.75

Change in McWages vs. Change in Manufacturing Wages between 2007 and 2012

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Comparison to other Wages

•

SbWages close to McWages for 36 countries, except for the high Dutch SbWage.

•

McWages more consistent than ILO wages and available in more countries than BLS or ICP. Of 34 BLS countries only 5 are

non-OECD, of 80 McWage countries 52

•

are.Can use McWages to check ICP or ILO wages.

•

In rich countries McWages diverge from manufacturing wages due to minimum wages.

•

On average McWages grow about 15 p.p.

faster than manuf. wages, both in 2007/0 and 2012/7 although growth gap more

uneven in 2012/7.

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Compare BMPH to

McWage in PPP for household consumption

PPP from PWT8, except El Salvador, last available year is 2011

BMPH – Shorthand for Income?

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Argentina

Denmark

0.511.52Big Macs per Hour

0 .5 1 1.5 2

PPP McWage

Note: All values relative to the US. Weights correspond to population.

McWages in 2005 US$ adjusted by price level of household consumption.

R-squared = 0.93.

Purchasing power of McWages in 2011

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Belarus

Argentina Ukraine Hong Kong

0.2.4.6.81Big Macs per Hour

0 .2 .4 .6 .8 1

PPP McWage

Note: All values relative to the US. Weights correspond to population.

R-squared = 0.76.

Purchasing power of McWages in 2011

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Hong Kong

USA Indonesia

Korea

Brazil

Russia

China

.511.522.5Big Macs per Hour

.5 1 1.5 2

PPP McWage

Note: Value 1 corresponds to no change. Weights correspond to population.

R-squared = 0.52. PPP adjusted from 2011 PWT level using CPI.

Change in PPP McWages vs. change in BMPH between 2000 and 2012

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China

Argentina Indonesia USA

Korea

Brazil

Russia India

.511.52Big Macs per Hour

0 .5 1 1.5 2

PPP McWage

R-squared = 0.35.

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Guatemala

Honduras

Georgia

Peru China

.511.522.5Big Macs per Hour

.5 1 1.5 2 2.5

PPP McWage

R-squared = 0.64. PPP adjusted from 2011 PWT level using CPI.

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Is BMPH similar to PPP McWage?

•

Yes. R2=0.93 in the 2011 cross-section

(but BMPH available until 2014, unlike PPP wages)

•

Most PPP wages higher than wages in Big

•

MacsGap is larger in Argentina or Belarus, but not systematically driven by bouts of

inflation

•

PPP Wages and BMPH also evolve similarly

•

2012/00: Indonesia, Brazil, US among

losers, China, India grow in BMPH, not in

•

PPPComparing 2007/00 with 2012/07: China and India ordered the same way in both measures

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McWages along the Development Path

• Balassa-Samuelson (the Penn effect)

• Convergence, as opposed to regression to mean

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Brazil

India

Norway Switzerland

2468$ Big Mac price

0 5 10 15 20 25

$ McWages

Note: The regression line is from a log linear regression with slope 0.28.

R-squared = 0.57. The regression is weighted by population; Venezuela is excluded.

McWages vs. Big Mac Prices in 2014

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Russia

USA Japan

-1-.50.51BMPH in 2014 - BMPH in 2000

0 1 2 3

BMPH in 2000

R-squared = 0.39. Coeff. of Var of BMPH in 2000 is 0.74, in 2014 it is 0.60

BMPH vs. change in BMPH between 2000 and 2014

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-2-1012PPP McWage 2012 - PPP McWage 2000

0 2 4 6 8 10

PPP McWages in 2000

R-squared = 0.03

Coeff. of Var of PPP McWages in 2000 is 0.69, in 2012 it is 0.65

HH PPP McWages vs change in PPP McWages between 2000 and 2012

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Migration and McWages (Welfare)

Wages of US immigrants (Kennan, 2013) do not condition on hedonic job qualities and skill inputs.

ARG

BRA CHL

COL

CRI DOM

ECU

EGY

GTM

IDN IND

MEX MAR

PAK

PRY

PER PHL

ZAF

LKA

THA

TUR URY

VEN

.1.2.3.4.5Relative Wages of Immigrants in the US

.1 .2 .3 .4 .5

PPP $ Relative McWages

Note: Wage ratios between similar immigrants and native US workers are from 2000.

McWage ratios are from 2007

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Migration flows in McWage units

McWage gains observed for 4,000 migration flow country pairs (Adsera and Pytlikova,

2015).

Mex-USA

0.0005.001.0015Sending Country Migration Rate

0 2 4 6 8 10

Difference between PPP $ McWages

Note: Weighted by population of sending country.

Excluding 22 migration rates above the 99th percentile.

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Mexico, Philippines at 50% of Chinese gain. Poland, Pakistan, Brazil 20%

Sending countries with high out-migration rates gain less per migrant.

Receiving countries with higher in-migration rates have higher avg. gains.

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Regional Cities

There is little sensitivity to extending regional samples. Wages in small US towns are a bit lower and wages in mid-sized cities in Russia are lower than in large cities.

CHINA: Shanghai and Beijing + Quanzhou, Fujian; Foshan, Guangdong; Fuqing, Fujian;

Heshan, Guangdong; Jiujiang, Jiangxi; Huaiyin, Jiangsu; Xuancheng, Anhui;

Zhuzhou, Hunan; Langfang, Hebei; Fushun, Liaoning; Xi'an, Shaanxi; Kunming, Yunnan

RUSSIA: Moscow and St. Petersburg + Samara; Yaroslavl'; Cheboksari; Nizhnekamsk;

Naberezhnie Chelni; Saratov; Voronezh; Rostov-na-Donu; Sochi; Novocherkassk;

Kazan'; Ufa; Orenburg

INDIA: Mumbai and Bangalore + Baroda; Dasuya; Ghaziabad; Hyderabad; Kolkata;

Meerut; Pune; Kolhapur; Nasik; Chandigarh; Ahmedabad; Chennai; Indore; Surat;

Varanasi

USA: New York and Los Angeles + Miami, FL; Chicago, IL; Dayton, OH; Indianapolis, IN;

Atlanta, GA; Dothan, AL; Cicero, IL; Grand Junction, CO; Syracuse, NY; San Francisco, CA; New Orleans, LA; Oakland, CA; Oakland, CA; Birmingham, AL;

Denver, CO; Houston, TX.