Question

Consider a firm that uses both Canadian labour and foreign labour in its multinational operations. Explain why a decrease in the foreign wage rate may either increase or decrease the firm’s demand for Canadian labour, depending on the degree of substitutability between Canadian and foreign labour.

Answer 1

A decrease in the foreign labour's rate could decrease the demand for Canadian labour since the costs associated with hiring foreign labour could decrease significantly when compared to hiring Canadian labourers.Of course, this could only happen if the degree of substitutablity between Canadian labour and foreign labour is sufficiently high enough to offset the costs incurred from training foreign labourers while factoring in the benefits in terms of the savings due to the lower wage rate.