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The Big Mac Theory of Development

Employees work at a McDonald's restaurant in Noida, near New Delhi
Employees work at a McDonald's restaurant in Noida, near New DelhiPhotograph by Pankaj Nangia/Bloomberg

It’s a question richer people have about their poorer neighbors: Why are they poor? Is it circumstances, or is it some kind of moral or intellectual failing? Is it that they never had a chance to cross from the wrong side to the right side of the tracks, or that they never had the motivation to cross? The subject colors thinking about international development as well. Is poverty in Africa and Asia the result of something about individual Kenyans or Pakistanis, or is it instead something about Kenya or Pakistan? Is it about the people, or the place?

A new paper by Princeton Economist Orley Ashenfelter for the National Bureau of Economic Research sheds some light on this debate. It compares the wages earned by staff working at McDonald’s franchises around the world. Ashenfelter studies what McDonald’s employees earn against the cost of a Big Mac in their local franchise. The Big Mac is a standard product, and the way it’s made worldwide is highly standardized. The skill level involved in making it (such as it is) is the same everywhere. And yet, depending on where they live, crew members from all parts of the world earn dramatically different amounts in terms of Big Macs per hour.