The point of this example is that making paper hats creates little to no wealth. No one is going to compensate you handsomely for whatever random activity you choose - there has to be demand.
A living wage, or even minimum wage, isn't being "compensated handsomely," it's being compensated at least enough to survive.
If having someone make paper hats 40 hours a week is a bad business model, that's not the employee's concern. Why should the person running the paper hat making business expect to make a living at it, but not the person making the hats?
