"Businesses hire only when more employees are needed to meet unmet demand." - anyone disagree?

Is there any legitimate doubt to the statement in the thread title? I mean, other than a few business who hire their brother-in-law’s kid to give him a first job (and the like)?

It seems to me like this is an intuitively obvious statement about economics. A restaurant chain (for example) will open a new store only if it thinks there is demand in the new area- not because they just happened to get a windfall profit or reduced tax burden.

Some will hire on the basis of expected future demand.

Egg and chicken situation. Does demand create supply, or does supply create demand?

There are strange exceptions - you mentioned the brother in laws kid. There is sometimes staffing up for programs that don’t happen - then you have the people and find something for them to do. In, IIRC, the 1980s, there was an accelerated depreciation schedule plus some tax code that made it profitable to build strip malls, even when you knew they’d fail (if you are old enough, you’ve probably seen them - abandoned strip malls that have you thinking “why would anyone put that there?”

Demand can come from different directions. A widget factory that needs to make more widgets might add a second shift when widget sales go through the roof. But “demand” could come from Congress passing Sarbanes Oxley, when makes the widget company hire two more accountants, even if demand for widgets stays steady or goes down.

But businesses are not charities, and they hire because they need people to do something in order to make more money or keep making the money they are making.

One of the best things I ever learned in business school - and something I think we should teach high school students - businesses have a fiduciary duty to their shareholders to make money. They have no such duty to their customers or their employees.

I agree in principle but would expand it to state “unmet or potential demand”. There may not be a demand for the WidgetPlus, but the inventor may have such faith in its potential market that he hires a dozen WidgetPlus makers.

I would also propose a corollary that businesses in general have no extraneous employees. Thus if the minimum wage is increased, businesses would either have to eat the cost and reduce their profits or increase prices. If they could reduce their workforce they would already have done so.

Supply doesn’t create demand. It’s not an egg and chicken situation at all.

Well, a reduced tax burden–if it is long-run–will decrease their variable costs. This means that they can now offer a product at a lower cost. This will increase the quantity demanded (not the demand) because some people that were unwilling and/or unable to buy the product at a previous price can now do so. The demand curve doesn’t change, but the supply curve shifts out.

Likewise, if windfall profits are put back in the business, that might make some expansion profitable. For example, let’s say I was considering opening a factory in Whereever. I expect the factory to return about 3% profits. However, it will cost me 5% in interest to borrow the money to build the factory. So I don’t do it. However, if I have a windfall profit, I could use that money directly to build my factory. However, if it costs me 5% to borrow money, there is a good chance I could loan my profits to someone else at close to that, which is less trouble, so it would still make more sense to do that than to build. But there could be a sweet spot where it makes sense to use profits to expand but not borrowed money.

Except that if they could increase prices, they also would have done so. If they increase prices, they won’t be able to sell as much stuff, so they will be able to lay off some workers.

I don’t buy it. Do you really think if McDonald’s charged a nickel more for a Big Mac that they’d sell fewer of them?

Of course supply creates demand, that’s the only way new products are ever sold.
People don’t know they want something they have never heard of.

They obviously believe that.

And you missed an alternative-- automation. Does McDonald’s really need cashiers when they can install kiosks where people push buttons for what they want?

I don’t disagree…the only exception are the magical businesses everyone keeps dreaming about, who hire workers out of the goodness of their hearts just so they can have the privilege of paying them a living wage, and damn the profits.

I think that the cashiers also do other work behind the counter. And, it’s still probably faster than waiting on idiots poke around on a touchscreen trying to hold the pickles.

I can see some automation like that coming. Grocery stores already do it.

For the sake of argument, let’s assume that McDonald’s is convinced they can’t raise prices. Minimum wage gets raised. They already have as few employees as they can get by with. If you believe otherwise, then you must think they have poor business skills. Then the only thing that can happen is their profit margin gets reduced.

Or they can be motivated to spend more R&D dollars to develop a more profitable product line or further automate their stores.

You’ve never heard of Apple?

Or they reduce benefits. But if they do have to raise prices because of increased labor costs, then their competition probably has to as well. So, it’s not a good analogy to consider what they can or cannot do in a situation where their competitors do not have increased labor costs to deal with.

But yes, they may decide to reduce profits rather than go out of business. But I would not bet on it. I would bet rather that their very clever business folk figure out some way to keep profit margins the same. I think you are oversimplifying things by limiting the choices they have.

Price can create demand, and excess supply can create a lower price. If BMWs sold for $15k (with their current quality) there would be a lot more demand for BMWs.

That isn’t supply, its marketing.

There is a demand right now for the iPhone 6 - not that its available, there is zero supply, but there is demand.

There is a demand right now for the next Avengers movie - it hasn’t been made yet.

It’s already commonly done at retail fast food stores. Wawa stores are convenience stores with extensive deli sections and all the ordering is done by touch screen.

You still have people working in the kitchen filling orders. You just don’t have to pay anyone to take orders for people. And it doesn’t matter how fast or slow it takes people to poke in their order because the company isn’t paying the customer for their time. It would only be a problem if people took so long that there were wait times to place your order longer than with a cashier. But it’s not hypothetical - I’ve ordered hundreds of sandwiches from Wawa by punching in my order in a touch screen. I don’t think I’ve ever waited to poke in my order. I’ve almost never been able to order from a cashier at McDonalds without waiting for at least 1 person.

In my experience, no business people think in terms of economics. Not at all, but not in terms of supply and demand in particular. Even if they’re highly educated and completely understand economics, we just don’t think in those terms. We expand a business because we see a “potential opportunity” to make more money. Is that similar or exactly the same thing as “filling an unmet demand”? Sure it is.

Or in hopes of creating it. Nobody knew they wanted personal computers until the first few pioneers built them in their garages.