The important thing is that employers will try to pay as close to a starvation wage to keep as much of the value of the employee's work as they can. Of course, if every employer does that, the economy declines because fewer and fewer people have any discretionary income. The optimum wage would be something above that which people can barely get by on, since the economy needs people who will buy things.
But an even better deal for an employer is for all other employers to pay a good wage while he pays a very low one. That way he gets the benefit of prosperity, but doesn't pay for it.
Hence, cheating pays off. And thus a race to the bottom ensues, as other employers notice and do the same thing themselves.
Theoretical economists were shocked when Henry Ford paid his workers double the going rate. Henry wasn't doing it out of kindness; he was an autocrat, who detested unions.
He simply realized that he could sell more cars, if there were more people able to buy them. This is why the economy repeatedly defies supply-side economists, and doesn't tank each time the minimum wage goes up. In fact, there's no discernible trend at all from raises in the minimum wage.
And of course, why the horrifying stories of employers who imagine all sorts of terrible things if they pay their employees more, never come true. It's a comforting fable for them, but just a fable. In order for the classical economist theory to work, you need a very limited set of constraints. But this is why even economists admit that for the theory, reality is a special case.