Economics: Why Do Companies Hire?

Based on my interviews with CEOs, I've concluded the obvious — companies hire only when not hiring means they can't satisfy customer demand. Put another way, companies hire when the profits missed from not hiring exceed the cost of adding a new worker.

Companies are not hiring now because in general, they have slack in their productive capacity. More specifically, in July 2011, their capacity utilization — a measure that compares demand for their products to their ability to produce them — stood at 77.5% — short of the long-term average of 80.4%.

For more, see Why Do Companies Hire? by Peter Cohan, September 3, 2011 at Forbes.com.