What is that based on? The employer is making a profit; they can reduce those profits and pay employees more. It happens all the time in response to the labor market.
If the labor market caused employees to be paid more, would the employer refuse? Shut down?
It is based on the idea that the employer is running a business and competing with other businesses to provide the best product at the lowest cost. The employer is operating at the lowest profit he considers acceptable. In your imagination there is some "labor market" which is going to coordinate to bring all these businesses to an impasse. That's not going to happen.
If somehow the labor market was able to coordinate to demand higher wages, the business would have to increase its price. There would be less demand at the higher price. Consequently there would be fewer businesses and fewer workers would have jobs at all.
> The employer is operating at the lowest profit he considers acceptable.
Businesses are profit-maximizing organizations. They operate at maximum profit, not at the lowest! A business's managers don't meet to consider the lowest profit but how to maximize it. Critically, they don't price what they sell at (costs + some profit); the price it for maximum profit regardless of costs.
Some businesses have enormous profit margins, some businesses sell at a loss - many businesses do that regularly (e.g., clearance sales) - because that is the best they can do. Some sell at a loss strategically to gain market share, a common tactic of well-funded Silicon Valley companies.
> If somehow the labor market was able to coordinate to demand higher wages, the business would have to increase its price. There would be less demand at the higher price.
From the business owner's perspective, wages are a cost. Costs, including wages, go up and down all the time. If you make TVs, the price of glass might be X one month and 1.5X the next.
The business brings in revenue, which it splits between costs, investment, and profit. When costs increase, you can raise prices (which reduces demand, as you say, and also drives away customers longer term) or reduce investment and/or profit.
Also, the relationship between price and demand isn't linear; it varies by price and by good/service: Increasing gas prices temporarily may not impact demand much because most people have little choice but to drive, though in the long term they might make adjustments. Increasing candy prices, on the other hand, could have a big impact because most people can easily eat something else.
The employer of the person in the OP has a choice if wage costs increase: Increase prices, reduce investment, or, heaven forbid, reduce profit (reduce their own income).
Profit is not some arbitrary amount chosen by the owner to fund whatever lifestyle he prefers. It is constrained by competition with other businesses. I don't know why you keep suggesting that the amount of profit can be increased or decreased independently of any other factors.
If the profit in this business becomes less appealing relative to other businesses, the owner will change businesses, there will be less competition in this business and the prices will go up. Increasing potential profit.
This is basic stuff. Despite your aversion to business owners making a profit and wishing employees were paid more, introducing non-linearities, loss leaders, price inelasticities or any other complication does nothing to change the fundamental point.
Most of that I didn't say, but it's certainly true that wage increases are commonly absorbed by reducing profits (or investment) rather than closing the business (!) or increasing prices.
Closing a business because wages or any cost go up a bit would be absurd. That is way overstated. Of course there is some undefined point where costs are too high to sustain, but closing and opening businesses is not trading stocks on Robinhood. There are large transactional costs, including to your reputation - investors, creditors, co-workers, business partners, employees, who have invested their precious time, money, and careers and reputations with you, would be very angry (probably they would replace you as CEO and keep going). And how will you pay your mortgage next month?
> the amount of profit can be increased or decreased independently of any other factors
It indeed can be decreased that way, except that the money has to go somewhere - retained earnings (savings), new gardens in the courtyard, even wage increases.
> Closing a business because wages or any cost go up a bit would be absurd.
It is not absurd at all. This is economics thinking. There are always businesses on the margin of staying in business or going out of business. You don't base an argument on the extremes. You look at the marginal cases.
It's only absurd in the scenario you're imagining in which every business is somehow able to make so much profit that it's still worthwhile for them to reduce profits and increase wages. But there are other businesses who are willing to decrease profits to compete with that business. This is the precise mechanism of how profit is constrained and how consumers benefit from competition.
If the labor market caused employees to be paid more, would the employer refuse? Shut down?