Edit: I thought my parent poster was the same as my grandparent's parent. I removed a paragraph aimed at the latter. Sorry![...]
Just because people earn less and have less money, the economic output in goods won't change. Goods will simply become cheaper.
What really matters is WHERE the money is removed from the system because companies/individuals supposedly hoard it, pay low wages, or cost of compliance is high. Because that place/group/country will become poorer compared to the rest of the world or country.
There's many complex interactions when you think about economies at global or nation scale.
To get to the matter at hand:
> Or business will pass the compliance costs to the consumer, thus raising price for all.
Yes. They may need to hire two additional people or change their manufacturing process to a more expensive one to comply with some safety standards and whatnot. The good might become slightly more expensive compared to other goods, and some economic output will be lost. But everyone will have to do that, which gets me to your next point:
> Those breaking the law and not complying will have a competitive advantage.
Criminals always had a competitive advantage. It's the job of law enforcement to make sure this doesn't happen - if that doesn't work you have a bigger problem. This argument is useless.
> as well as those large enough to spread the compliance costs over all their production.
Depends on what the compliance cost is. Need to hire an extra guy to do paper pushing for compliance? This cost (maybe) can be spread. Need to use more expensive materials? Bigger corps won't have more advantages here than they had anyways (buy in bulk etc.)
> Wages are the price of work as established by the free market.
That's the theory and mostly true. The problem is a disparity in bargaining power and stakes at wage negotiations.
You need organizations selling that "work" who are at least as powerful as their buyers (read: unions).
A lack of unions can force companies (through no fault of their own) to determine wages by the market price of their produce, instead of raising their prices. An union has the power to negotiate wages across entire industries - thus allowing companies to compete without doing so on the backs of their workers. (Edit: This is essentially a way of arriving at a minimum wage for that industry).
> They are simply replaced by more productive workers or robots.
Again. Maybe they should use robots - if a robot can perform the work for less than what could be considered a livable wage for a human worker, the human worker is best used elsewhere. You just made a good argument that minimum wages could increase economic output.
> The most vulnerable members of our society are affected the most, being robbed by the dignity and opportunities of a paid job and being relegated instead to live off the government's teat.
The dignity of a job that is paid so badly that the government has to indirectly subsidize the industry by giving the worker additional government aid, even though he has a paid job? Another great example that the free market fails at setting fair wages. Industries like that should be forced to increase their prices instead of indirectly being subsidized with tax payer money by having their workers receive government aid. Yes: McDonalds & Co. prices may increase - but you were paying that anyway, indirectly, with taxes.