We can see how this works by considering a simplified scenario. Firm A is successful and makes a profit, which means that they have earned more revenue than is needed to cover their current costs. So, in order to grow their business further, they will invest some portion of their profit into such things as training workers in new skills or implementing new technology. These investments will likely make existing workers more productive, empowering them to generate more revenue for the firm than they could before. The competition from other firms for this increasingly-productive labor creates upward pressure on wages.

This is not some sort of free-market fantasy, but rather has been borne out empirically. Recently, such competition for labor led to wage increases for hundreds of thousands of workers at companies ranging from Walmart to Costco to Amazon.

Wages have risen even further now due to the labor shortage, as there are many firms trying to outbid one another for a limited number of workers. But employers aren’t only competing with each other; they are also competing with the factors that are keeping people out of the labor market altogether, such as unemployment benefits. Firms must convince workers that they are providing them more value than all alternatives.

[Even if it did, the relief would only be temporary, as minimum-wage hikes are inherently inflationary. The artificial increase in the cost of labor requires either price hikes to fund or a reduction in headcount. Price hikes get passed to consumers, whose buying power gets eroded as a result, and the lowest wage demos get hit the hardest. — Ed]