Updated January 27, 2018 with new data.
Courtesy of US Uncut, with over 21,000 likes and 49,000 shares. This meme attempts to show that raising the minimum wage doesn’t translate into an increase in prices by showing the price of a Big Mac in 3 different countries. There is some truth to these stats, but it’s very misleading and when further context is given it doesn’t support the argument.
Note: updated memes (shown below from Patriotic Millionaires) have changed, the data below has been updated to reflect the 2018 numbers.
The Big Mac Price Debate
The burger prices shown in the meme come from the “Big Mac Index“, which compiles the average price of a Big Mac in various countries around the world. This is done by the Economist magazine, as a lighthearted way to see which currencies are overvalued (not to compare minimum wages). However, they even admit it’s not a precise measurement for economic calculations, which we’ll see when we examine the data.
For 2018, it lists $5.28 for the US (not $5.82 as in the meme,) $4.71 for Australia and $5.10 for France. The meme is simply wrong on two data points. It appears to misplace the 8 and 2 for the US price, and it lumps France in with “Euro Area”. One must click on the full data Excel chart to see France, which the meme failed to do.
However, even $5.28 seems wrong for American prices, just go to your local McDonald’s and see for yourself. The Meme Policeman did some detective work and visited a McDonald’s in the Minneapolis suburbs, finding a price of $3.95 (see picture below).
The website Fast Food Menu Prices seems to be a better indicator of the actual price of a Big Mac in the US, and corresponds to what the Meme Policeman found anecdotally, putting the price of a Big Mac much lower than the Big Mac Index. In fact, there’s only one state with an average price above $5.28, and that’s Hawaii at $5.31. The lowest is Mississippi with an average price of $3.91. Most of middle America lists prices in the low $4 range, making it cheaper than both Australia and France. States in the Northeast and west coast generally have higher prices, some climbing above $5. However, they also have the highest state minimum wages, which sort of ruins this meme’s narrative.
So how does the Big Mac Index come up with $5.28 for the average US price? They admittedly take “the average price in four American cities”. Which cities? They don’t say, but if they took likely candidates like New York, Los Angeles, Chicago and Washington, D.C., those McDonald’s would obviously have higher prices (as well as higher minimum wages). For example, Washington, D.C. has an average price of $5.35, higher than any other state.
In fact, most major cities have minimum wages much higher than the federal minimum of $7.25, with many approaching or exceeding $15/hr. It should be obvious that looking at McDonald’s in Manhattan isn’t a fair representation of America. Clearly, the Big Mac index is a poor descriptor of the average price throughout the US, as most locations will have much lower prices than $5.28. It’s also disingenuous to use that index and pretend it’s based on a minimum wage of $7.25/hr, when it’s not.
We should take The Economist magazine’s own recommendation, and treat the Big Mac Index as a light-hearted way of bringing economics to the masses, not as a serious economic study.
Australia’s Big Mac is Smaller
No, really! It’s about 20% smaller than in the US for some reason. This obviously skews the whole price relationship. Assuming you had to buy 1.2 Australian Big Macs to equal an American one, it would set you back $5.65.
Other Consumer Prices
It shouldn’t be too controversial to point out that using a dubious measure of one sandwich at one fast food restaurant as a measure of consumer prices is ridiculous. You’d probably be laughed out of any economics class for that. What’s more relevant is what are the average consumer prices in the US vs. Australia. Using Numeo we find these comparisons as of January 2018:
- Consumer prices are 17.5% higher in Australia
- Consumer prices including rent are 15.5% higher in Australia
- Restaurant prices are 18.6% higher in Australia
- Average meal at an inexpensive restaurant is $13 in the US vs. $14.60 in Australia
Contrary to what this meme insinuates, consumer prices, including cheap restaurants, are higher in Australia. Of course, this compares the entire US and Australia. Different cities will compare differently. For example, New York City has higher prices than Sydney.
The Real Minimum Wage in Australia and US
The meme lists $14.80/hr for the Australian minimum wage. This is correct, based on the latest laws and exchange rates. However, Australia’s wage scale is graduated based on age, which is a tacit admission that high minimum wages hurts the young and low-skilled workers. It’s a complicated scale that depends on many factors, but using their wage calculator, here’s the breakdown for a part-time, minimum wage fast food employee:
- 16 years old- $10.04 ($8.13 USD equivalent)
- 17- $12.05 ($9.76 USD)
- 18- $14.06 ($11.38 USD)
- 19- $16.07 ($13.02 USD)
- 20- $18.08 (14.64 USD)
- 21 and above- $20.08 ($16.26 USD)
While it’s true the US minimum wage is $7.25/hr, that’s only the federal law. Most states, 29 in fact, have rates higher than that. Many larger cities have rates at or above Australia’s minimum wage, particularly for young, part-time workers. Glass door reports the average McDonald’s worker makes around $8.60/hr. The Bureau of Labor Statistics reports the median wage of food preparation workers at $10.31/hr.
What About the Laws of Economics?
This is really the proper way to think of the issue. Pointing to statistics can be interesting, but there are so many factors clouding the price of products in various countries. Different taxes, regulations, tariffs, labor markets, monetary policies, natural resources, the list goes on. It’s just not possible to know which factors are directly contributing to the difference in Big Mac prices or to what extent. In economics, they use the term ceteris paribus, which is Latin for “all things being equal” in order to isolate variables and make logical judgements about economic effects.
For example, in looking at the price of Big Macs, we could say if the supply of beef went down, ceterus paribus, the price of a burger would rise, due to the law of supply and demand. This doesn’t mean that if the beef supply decreased it must result in a more expensive Big Mac, as there are countless other factors at play. Perhaps the economy was bad, and people had less money to spend, thus decreasing the demand for Big Macs. Maybe a competitor comes out with a better sandwich, and McDonald’s had to lower the price just to attract customers. Who knows? All economic theory can tell us is in this case is that a decreasing beef supply will put upward pressures on the price, not that it must increase the price. This is why statistics are often a bad way to look at economic effects.
In looking at the minimum wage vs. Big Mac prices we need to think the same way. If you force companies like McDonald’s to increase their labor costs, ceteris paribus, there will be an increase in their prices. This is just basic economics. Labor is one factor in the price of production, so increasing the price of producing something will tend to increase the price of the product. Saying it has no effect, or the opposite effect would be nonsensical. How much the minimum wage affects the price can’t be known for sure, but it does have an effect, and it tends to increase prices. That tendency is greater the more the minimum wage increases.
This meme is a classic case of misleading with statistics. Using the Big Mac Index is problematic, as it doesn’t accurately portray what most Americans pay. It only the average of four cities, which likely have much higher minimum wages than the federal. But, even if we use the Big Mac index, we clearly see a trend in countries with higher wages having higher prices. The countries with the highest minimum wages (Norway, Denmark, Sweden) tend to have the most expensive Big Macs, while we find the countries with the cheapest burgers (India, Venezuela, Ukraine) tend to have lower wages. As we saw above, the price can’t be directly correlated to the minimum wage, but it definitely has an effect, and it’s the opposite of what the meme purports.