AverageAustralian111 t1_jaif2lc wrote on March 1, 2023 at 5:42 PM

Reply to comment by stratodrew in [OC] Real minimum wages 2021 by Klutzy_Ambition5445

Sure,

In some countries, prices are higher than in others. For example, a loaf of bread in Australia might cost around $3, but in China, around 2 Yuan (which exchanges to about 50c. So (measuring it only by bread prices) $1 in China is worth 6 times as much as $1 in Australia.

If you do this for all products and weight it by the amount of each product that normal people buy, you can find the cost of living in a country. Real wages are wages/cost of living

So in the example above, NZ has a minimum wage of $US14.18, but because things are slightly more expensive in NZ than in the US, that amount of money can buy the same amount of stuff in NZ that $US11.90 could buy in the US.

When you adjust for PPP, you take this into account. If you ever see "real" vs "nominal" figures, real means adjusted for PPP, and nominal means not adjusted

stratodrew t1_jaimfaz wrote on March 1, 2023 at 6:28 PM

Awesome, great explanation thanks!

snagsguiness t1_jajombu wrote on March 1, 2023 at 10:27 PM

You might be interested to learn about the Big Mac index

https://en.wikipedia.org/wiki/Big_Mac_Index?wprov=sfti1

It takes this concept and applies it to McDonald’s big macs which is a good indicator of the actual value of a currency and the cost of living.

capybarawelding t1_japzgy0 wrote on March 3, 2023 at 5:21 AM

Another question: was a set uniform basket of goods selected, or was a combination and a quantity of goods somehow chosen by reporting bodies?

AverageAustralian111 t1_jaquft7 wrote on March 3, 2023 at 11:56 AM

Different countries tend to use different baskets of goods to reflect their own consumption patterns. The OECD probably pulls their data from state statistics agencies (although it is possible they conducted their own survey)