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Written by By Joshua Ong
Despite having a large menu with everything from salads to smoothies, the Big Mac stands out as the signature trademark burger offered by the franchise. With 2 seasoned beef patties stacked in between a three piece bun, accompanied by crisp lettuce, onions and a signature zesty sauce, the Big Mac certainly lives up to its name.
No matter where you travel around the world, a Big Mac from any local McDonald’s definitely retains a certain level of consistency in terms of taste, texture and appearance. But we’re not here to talk food. Instead, we’re here to talk about an index which uses the Big Mac as a benchmark and changed the way many viewed the relationship between income and affordability.
Enter the Big Mac Index
Invented by Ng Yat Chiu in Hong Kong, the Big Mac Index gained international exposure when it was published by <The Economist> magazine in 1986. The index, which compares the prices of Big Macs from different countries, is often used by economists as a real life gauge of the valuation of a nation’s currency. In fact, use of the Big Mac Index is so popular that the official website of <The Economist> has a permanent interactive tool for users to compare the different prices offered by various countries.
Example:
In Malaysia – Price of a Big Mac = RM7.40
In Singapore – Price of a Big Mac = SG$3.60
If the cost of a Big Mac in either country is assumed to be equal then 7.40/3.60 = 2.05 should be the exchange rate value in Ringgit of 1 Singapore Dollar. However, the actual exchange rate for Ringgit to Dollar as of March 2014 is 2.6. Thus according to the Big Mac Index, the Ringgit is overvalued against the Singapore Dollar because Malaysians are technically paying less for their Big Mac than the exchange rate entails them to. Currency performance aside though, what else can the Big Mac Index tell us about wage conditions within Malaysia?
For example, take Singapore, Malaysia and Indonesia.
Out of the three countries, at RM7.40 per burger, Malaysia definitely has the cheapest Big Macs once you factor in the exchange rate. Though, if you ignore the exchange entirely and focus solely on the average income of citizens in all three countries, the outcome changes vastly. The average Malaysian working professional aged 25-27 earns approximately RM3,600 monthly, comparatively, his/her respective Singaporean and Indonesian counterparts earn around SG$3,700 and IDR9,000,000 a month.
Who can afford the most Big Macs overall?
Unfortunately, despite having the cheapest overall price, it is not the Malaysian but in fact the Singaporean who can afford the most Big Macs overall. With a salary of SG$3,700, the Singaporean can afford a maximum of 1027 Big Macs a month, whereas the Malaysian can only afford 486. The Indonesian unfortunately is much worse off, being able to afford only 321 Big Macs per month.
What if the comparison were to be made using minimum wage instead? Would the result be any different?
The minimum wage in Malaysia was recently set at RM4.33 per hour. Considering that, a Malaysian on minimum wage would have to work 1.71 hours to earn himself/herself a Big Mac. Comparatively a Singaporean would only have to work 0.65 hours on the generally accepted minimum wage of SG$5.50/hour. Indonesians, on the other hand, would have to shell out 2.29 hours of work at minimum wage to buy a Big Mac.
What does the Big Mac have to do with economics?
Despite the Big Mac’s popularity in other countries around the globe, the 3 piece bun extravaganza actually doesn’t fare that well with Malaysians so you may be wondering; why of all things use a Big Mac to check currency correlation?
For the study; it was meant to be light-hearted and Big Macs are the same worldwide – the same cannot always be said for other foods. The Big Mac transcends most racial and cultural barriers so it seemed like the one thing people around the world could relate to. It made the study relatable. Whilst critics panned the study; Burgernomics has grown in popularity since its inception and is used in many economic textbooks the world over.
One thing is certain; even in this short, quick look at purchase power parity between Singapore, Malaysia, and Indonesia using Burgernomics – some very interesting (if not really surprising) food for thought has been presented.
This was brought you by JOSHUA ONG from RinggitPlus.com. RinggitPlus compares credit cards, personal loans and home loans to help Malaysians get more for their money.
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