Big Macs and Wages To Go, Please: Comparing the Purchasing Power of Earnings Around the World

Li Lian Ong

Chapter 5 in The Big Mac Index, 2003, pp 92-108 from Palgrave Macmillan

Abstract: Abstract The relocating employee’s main concern is that the current standard of living can be maintained or improved in the destination country. This means that their purchasing power cannot fall. However, comparing home- and destination-country prices based on the existing exchange rate would be inappropriate since exchange rates only reflect purchasing power parity (PPP) in the long term. Thus, an index for real wages and expenses should be created whereby these prices are converted into purchasing power equivalents for each country. Using an index based on the ‘perfect universal commodity’, the Big Mac hamburger, as a price deflator, the real wages and major relocation expenses for US employees in some of the biggest commercial cities around the world are considered in this chapter. A model is subsequently developed whereby real wages can be approximated based on the market status and geographic location of the destination country. The results indicate that US employees would generally be worse off moving overseas if they are to be paid destination-country wages to take up similar positions; moreover, major expenditure items such as accommodation and cars are also extremely expensive in certain foreign cities. These findings can be used by multinational companies (MNCs), their employees, as well as economic migrants to define equitable and attractive salary packages.

Keywords: Gross Domestic Product; Real Wage; Purchase Power Parity; Destination Country; Real Gross Domestic Product (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-51241-2_5

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DOI: 10.1057/9780230512412_5

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