That's only part of it (although I have certainly seen that existing employees raises don't compete with the salaries of new hires with the same amount of experience at the same company).

Another part is that if you hire an inexperienced programmer, not only do they have lower productivity than an engineer with 2+ years experience, but they lower the productivity of at least one other senior engineer that needs to mentor them and bring them up to speed. I'd estimate that mentoring a new inexperienced hire would at least half the mentor's productivity for a couple months at least. If you hire someone that's already worked a couple years, that lost productivity was paid for by a different company.