You’ve now accounted for differences in price levels and mean earnings and y ou have a measure that is friendlier to interpretation to the masses. In the case of the Big Mac Index, simply divide the average daily earnings of each country’s workers by the local price of a Big Mac, and compare.
Traditional metrics, like GDP per capita in purchasing power parities (PPPs), may give a sense for the economic well-being of populations but they also require training to interpret: what exactly does it mean, or does it even matter, that the difference in GDP per capita between the US and Australia is $10,000? It would be mor e straightforward to think in terms of how many goods - Big Macs or otherwise - a person could purchase with his or her wage. In Pakistan, local average daily wages would not even get you two Big Macs. Let’s venture to a lesser developed country with far lower average earnings: Pakistan.And, yet, in Australia, you could get 40 Big Macs despite the fact that the GDP per capita in the US is roughly $10,000 higher than in Australia. In the United States, the home of the Big Mac, the average daily wage would afford you 33 burgers.So, why is the Big Mac Index from the Economist a well-known concept around the world? It’s simple: Big Macs are easier for the overwhelming majority of the world’s population to understand as opposed to economic concepts like “GDP per capita in purchasing power parities,” which is a mouthful and a complicated concept. The answer to the riddle of course depends on many factors, including where you live. It sounds like a riddle: how many Big Macs for your entire daily wage? Granted, many of our readers may not even have access to a Big Mac where they live (not to mention those who wouldn’t buy Big Macs if they were vegetarian, among other reasons).
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