It works because supply and demand in the labor market has nothing whatsoever to do with the profitability of a firm.

It's kind of how the price of strawberries this week in the supermarket is determined by the supply of strawberries, demand from customers, and the price at neighboring supermarkets. It's not set by anything to do with the supermarket's profitability.

I mean yes and no. If the supermarket never sells it because they can't make a profit (and it's not in enough demand to be a loss leader that brings people in), then the supermarket won't sell them, driving down demand to the supplier. If that exists for one supermarket it likely exists for others driving down the demand more (even if said demand would have otherwise remained high) .

You see this dynamic in markets fairly frequently and the profitable goods and services will be promoted more heavily. One can get philosophical about what is supply and what is demand, but middle man profitablity is a factor in those things as they're at once a customer and a seller.

TLDR supermarket profitablity definitely drives pricing as well. Just another component.

>> supply and demand in the labor market has nothing whatsoever to do with the profitability of a firm

> [supermarkets]

All supermarkets have to pay the same price to buy strawberries, regardless of their individual profitability.

Normally by convincing VCs that the company is worth the money of your inflated salaries and after X years they will make it back. Not many people out here are investing out of good will.