Suppose that the U.S. government required firms to pay a living wage to workers in their subsidiaries or contracting firms in developing countries. As a consequence of this requirement, wages would likely _____ to the living wage and employment would likely _____.

Question

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If firms are required to pay a living wage to workers in developing countries, their cost of production will increase, which would likely be passed on to consumers in the form of higher prices. As a result, demand for the goods produced by these firms would likely decrease, causing a decrease in employment. Additionally, some firms may choose to move their operations to countries with lower labor costs, resulting in a decrease in employment in the countries that were previously employing these workers. However, for those workers who do remain employed, their wages would likely increase to the level of the living wage.

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