> Because if they don't, they are externalising the true costs of labour to the government, or the community.

Does this mean anything or is it a circular definition?

If we decide we'd like people to have at least the standard of living of a single person earning $40/hour, does that make $40/hour the "true cost of labor"? Could we just as easily raise our standards and say $50/hour is the true cost?

The living wage is higher than what you would often have with no government intervention or safety net, so it's not a natural cost of labor in that sense.