Presumably the boss was gaining more value from work done than the cost and the employee could try for a job elsewhere.

I'm not on the other side of this argument, but this is often plainly untrue.

Employee fires boss, employee makes more money, boss loses work, pays tons of money, and then pays a higher salary.

I do agree about the power imbalance though.

So, why doesn't the boss always fire all employees and not pay any salaries?