You're forgetting that there are other employees and other firms in the world. Either class is free to look outside the current relationship if they are unhappy, and this can rely entirely on subjective judgement.

If you see a bunch of people who are paid more than you, you can judge that you'll be able to find another employer who will pay you what you want, but only if you have a reasonable overview of what the salaries are in the system.

Same goes in the boss side, he can decide whether he wants to hit or stick.

Information is absolutely crucial in markets.