Consider a firm that uses both Canadian labour and foreign labour in its multinational operations. Would...

Consider a firm that uses both Canadian labour and foreign labour in its multinational operations. Would an increase in foreign wages necessarily increase the demand for Canadian labour? Explain.

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Expert Solution

An increase in foreign wages of the foreign employees employed by the Canadian firm will increase the overall cost of production for the Canadian firm. As the cost of production for the Canadian firm increases, the firm will try to substitute foreign labor with domestic labor at low wage rate to reduce its cost of production and in the process of reducing its cost of production it can earn higher profits which makes the firm profitable in the long run.

Thus, it can be stated that if a firm uses both Canadian labor and foreign labor in its multinational operations, then increase in foreign wage rate will lead to substitution of foreign workers with domestic workers and skilling them to replace the foreign workers so that company is able to lower its cost of production and thus increase its profits. Thus, it can be stated that an increase in foreign wages would increase the demand for Canadian labor.

Rahul Sunny answered 2 years ago

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