Development Roast
http://inesad.edu.bo/developmentroast/2015/02/the-universal-beer-work-constant/

The Universal Beer Work Constant


Lykke Andersen

By: Lykke E. Andersen*

It's Carnaval week/month in Bolivia - the time of year when most beer is drunk. Beer prices have just gone up again, now reaching an outrageous Bs. 9, or more, for a small can of standard beer in supermarkets. This corresponds to USD 3.64 for 1 liter of beer, way more than it costs in rich countries such as Denmark.


If we take into account the low level of wages in Bolivia and the high prices of beer, Bolivia becomes one of the most expensive places in the world for beer lovers. On average, Bolivians have to work about 145 minutes to afford 1 liter of beer (1), whereas in the United States on average they only have to work for 10 minutes (see figure 1).


Figure 1: Minutes of work required to purchase 1 liter of beer in a supermarket




Source: Author's elaboration based on data from The Economist + Bolivian data (http://www.economist.com/blogs/graphicdetail/2012/09/daily-chart-13?zid=319&ah=17af09b0281b01505c226b1e574f5cc1)
Source: Author's elaboration based on data from The Economist + Bolivian data (http://www.economist.com/blogs/graphicdetail/2012/09/daily-chart-13?zid=319&ah=17af09b0281b01505c226b1e574f5cc1)



The extremely high price of beer is probably the main reason why Bolivians consume much less beer than most other countries. While it doesn't look like it these days, Bolivians on average consume only about 33 liters per person per year, whereas beer consumption in countries like Brazil, UK and Spain is double that, and in Germany it is three times larger (2).


The price-elasticity of beer consumption, as estimated from cross-country data on price (in minutes of work required to purchase 1 liter of beer) and quantity (liters of beer consumed per person per year) is -0.5, implying that a 100% increase in price causes a 50% decline in consumption (in the long run). This means that if beer companies double the price, they will sell half as much in quantity, but the sales revenues will remain the same.


Increasing prices is obviously an attractive strategy for beer producers, because they will obtain the same revenues with half the effort. However, it only works for beer companies or beer cartels that are effective monopolies, because if one beer company doubled the price while others kept it constant, the high price company would quickly lose its entire market share. In Bolivia, the Cerveceria Boliviana Nacional (CBN), owned mainly by the big transnational company Anheuser-Busch InBev, is effectively a monopoly, controlling more than 97% of the national beer market.


Incidentally, the -0.5 elasticity also implies that the number of hours we spend working to purchase beer is a constant, no matter what the beer price or our salary might be. If prices go up, we buy less, keeping total expenditure on beer (measured in time worked) constant. According to the data analyzed in this article, the Universal Beer Work Constant (UBWC) is about 30 hours per year.


No person should have to work more than 30 hours per year to afford their annual beer supply. If you do, then one or more of the following problems may be present:




  • Your monthly salary is too low

  • You work too many hours per month

  • Beer is too expensive in your country

  • You drink too much beer.


Go ahead and check if your beer consumption, salary and work hours fit the universal formula!


Figure2


For example, if you consume one beer per day (recommended daily dose, according to my grandmother), that adds up to 130 liters per year in beer consumption. The beer price in Bolivia is 3.64 $/liter and we typically work about 45 hours per week, which corresponds to 195 hours/month. Your monthly salary would then need to be about $3000/month for the UBWC formula to hold.


In case your calculated value is above the Universal Beer Work Constant, as is certainly the case for me, there are several possible adjustment mechanisms available to secure a perfect fit:




  • Negotiate a higher salary

  • Reduce your working hours

  • Reduce beer consumption

  • Switch to wine

  • Mobilize an anti-monopoly campaign to promote fair competition in the Bolivian beer market

  • Move to just about any other country in the World.


Cheers! Have a wonderful Carnaval everyone!



For your reference: 


(1)    According to data from EMINPRO-INESAD 1 for 2012, the average hourly income for occupied people in Bolivia was Bs. 10.45 and they worked an average of 46 hours per week.


(2)    http://www.eldia.com.bo/mobile.php?cat=357&pla=7&id_articulo=74604 2



Dr. Lykke E. Andersen is the Director of the Center for Economic and Environmental Modeling and Analysis (CEEMA) at the Institute of Advanced Development Studies (INESAD), La Paz, Bolivia.


 

 

 

 
Links:
  1. http://www.eminpro-inesad.com/
  2. http://www.eldia.com.bo/mobile.php?cat=357&pla =7&id_articulo=74604