Reference no: EM132284355

Suppose that the foreign worker ($100) makes 1/3 the wage of the US worker ($300). However, suppose that the US worker is four times more productive than the foreign worker. Who should we hire? So the US worker would cost $300. To get the same amount of output from the foreign workers, we would need to hire four of them ($400). Thus, it is better to hire the more expensive US worker, because the US worker isn't really more expensive when we compare the cost to the output. So one way the foreign workers can get the job is to lower their wages even more. And if they do that, then the US worker could raise his productivity to get the job.