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The following table was taken from data.oecd.org:

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This link gives the Big Mac index.

  • Big Mac Index of Ireland = 4.61
  • Big Mac Index of Poland = 2.65

Does this mean that Polish people in Poland have more purchasing power than Irish people in Ireland?

In other words, if we compare two persons living in both countries, is a Polish person enjoying more affluence?

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In other words, if we compare two persons living in both countries, is a Polish person enjoying more affluence?

No. Big Mac index estimates the implied purchasing power parity between local currency and dollar not purchasing power of individual.

For example, if Big Mac in US costs \$4 and Big Mac in UK costs £2 the implied purchasing power parity is $\frac{4 {\\\$}}{2£}=2\frac{\\\$}{£}$, implying that the estimate of "correct" exchange rate (under assumption that law of one price holds) of USD to BPD is 2 (or often Big Mac Index is expressed as local currency to USD which would make it 0.5 BPD to USD: $\frac{2£}{4 {\\\$}}=0.5\frac{£}{\\\$}$). This, on its own, tells you nothing about relative affluence of people in different countries because you don't know what their income is. Generally Big Mac Index is primarily used as a rudimentary check whether currency is over or under valued.

Purchasing power parity is useful to convent all incomes to the same units. You cannot compare zloty to euro incomes directly since that would be comparing apples to oranges. However, in itself its just conversion factor that does not tell you much about welfare of individual in particular country. Also Big Mac Index is typically not used for this because it's less precise than more nuanced measures of purchasing power parity (PPP). Advantage of Big Mac Index is that it can be calculated faster since it involves just comparing costs of Big Macs.

The most basic measure of welfare would be GDP per capita which tells you how much output/income country has per person. Adjusting for purchasing power parity the GDP per capita of Ireland is currently 3x as high as GDP per capita of Poland.

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  • $\begingroup$ You haven't mentioned Household income at all. What if Polish people can spend more in their country than the Irish people in Ireland? $\endgroup$
    – user366312
    Feb 26, 2022 at 10:11
  • $\begingroup$ @user366312 GDP per capita measures average individual income. GDP is income of whole country (in macroeconomics income and output are considered interchangeable), so GDP per capita tells you the average income of a person in Poland and Ireland. Also household income is not good for international comparison because household size is not constant between different countries (e.g. households in Ireland might be smaller or larger than households in Poland). In EU also we record statistics primarily on individual level not household level as done in USA. $\endgroup$
    – 1muflon1
    Feb 26, 2022 at 10:17
  • $\begingroup$ @user366312 in any case statistics show that the household income in Poland is just approximately 1/5 of the household income in Ireland so if you want to look at household income Poland looks much poorer, but this is likely bias caused by probably Polish households having different size. Ultimately what matters is how every person does not just a aggregate household ceicdata.com/en/indicator/poland/…. $\endgroup$
    – 1muflon1
    Feb 26, 2022 at 10:20

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