For 40 years, The Economist has indulged in what it refers to as “burgernomics”: a worldwide comparison of the price of a Big Mac. The McDonald’s Big Mac is remarkably consistent wherever you eat it, so you might expect its price to be consistent too. But it is not—and, according to the publisher, that reveals something about the true value of currencies. Perhaps.
As usual, Switzerland’s Big Mac is the most expensive, costing US$ 9.04 (CHF 7.30), 45% more than the same burger in the US, which costs US$ 6.22. The most affordable double layered burgers are found in Indonesia (US$ 2.38).
However, the Swiss-US price differential may not be entirely attributable to the exchange rate. The Economist provides a breakdown of what goes into the burger. Some elements, such as onions and cheese, are easily traded, and purchasing-power currency comparisons work best when products are readily tradable. Many other components, including rent, labour and electricity, are not tradable. Beef is another ingredient that is not freely traded. To protect Swiis farmerss, Switzerland applies tariffs of up to around 100% on beef imports, significantly increasing its price.
These non-tradable, or heavily tariffed, components account for 64% of the cost of a burger. Labour alone makes up 46% of the cost, and a Swiss store operator pays roughly 80% more in wages. A typical wage is US$ 15 per hour in the US, compared with US$ 28 (CHF 22) in Switzerland. Rent is similarly higher, costing on average 40–70% more in Switzerland than in the US.
When these non-tradable elements are excluded, or assumed to cost the same as in the US, the Swiss price falls to US$ 7.22, a premium of 16%—far below the unadjusted currency premium of 45%.
What appears to be an overvalued Swiss franc therefore reflects, at least in part, an economy that pays low-skilled workers far more (+80%), heavily protects cattle farmers and has eye-wateringly high rents (+70%).
None of this is likely to make either the Swiss price—or the burger itself—any easier to digest.
More on this:
Economist article (in English)
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