He raises prices to support higher pay, dog grooming now costs $500, none of his former customers can afford it, the company goes bankrupt and the employees are back on unemployment again.

You can't just pretend that every business can magically afford to raise wages. This isn't Apple paying kids in China 50 cents to build an iPhone they sell for $1,000, this is a local business that's probably barely able to pay the founder a middle-class salary in the best of times.