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

1. So here there are both foreign labor and domestic labor in Canada and they both have different equilibrium wages. So, how a decrease in a foreign wage rate increase or decrease demand for Canadian labor is depending on the substitutability between the two. EG: In my firm, boh type of labors are there. Technical works are done by domestic workers and physical less technical are done by both foreign and domestic workers. So if the wage of foreign workers decreases for technical work, then I can't hire foreign workers because they don't know technical works. So there is no substitutability.Thus for technical work foreign demand won't increase. But if wage fell in less technical work , then I will hire more foreign workers and their demand goes up.

Also, domestic laws also affect this.