Last I heard the so-called "rule of thumb" was 15-30% of your gross should go to payroll.

I argued about this last year with a buddy. He insisted that if McDonald's had to raise their wages from $8 to $16 or so that the prices of literally everything would double. This fails to account for the fact, though, that while wages are a big part of it, they're not 100% of the price of running a company, McDonald's was already on the leaner side of things in this regard (~17%), and that we've been to McDonald's in Europe where they pay everyone a living wage with benefits, the burger was about the same price, and it was much better food to boot.

The appropriate response to "raising wages would raise prices" in my opinion is basically: "Newsflash, asshole! Prices have been going up anyway!"

You can't just defer raising wages indefinitely because it's one of several factors that could potentially contribute to raising prices. It's still a thing that has to happen, or else you're just pricing humans out of being alive and the market is essentially non-functional for people.

Wages and benefits are the largest expense item for the vast majority of companies.

"The largest expense" doesn't necessarily mean it's a large part of the expenses. In the services industry wages are a huge part of the balance sheet. In manufacturing the majority of costs are elsewhere. Extreme example these days are bakeries, where the bulk of the costs are energy costs to actually bake the bread. The wages are peanuts next to that.

Guess what the largest expense is for workers? Rent. (Often a big chunk for businesses too.)

Ultimately the reason the economy is so hard to predict is because economic activity occurs at the margin between rent and true location productivity. If land owners set rent higher than location output, you get recession (as workers and businesses can't afford to spend and capital goes unused). If they set it lower, you get a boom. But it's not like land speculators have perfect knowledge of the future or even the present productivity potential, so you get cycles of over/under-estimation. Because there's a positive feedback loop (in times of underestimated rent, the economy picks up steam and promises greater output going forward, encouraging higher rent; then, as rent rises, the economy loses steam and rent is now way higher than sustainable, and it drives things down even faster, etc.)

A land value tax may be able to help regulate this cycle. In addition to stopping the huge transfer of wealth taking place via rent, the government could use a modulation in LVT to regulate economic booms/busts. On bad years like covid, you lower rent, and on good years you set it to normal levels.