It's very simple, really. If you only raise salaries on personnel rotation, you do not have to raise salaries of those employees that do not jump ship. You save a bundle if you have a large workforce.

This attitude introduces a skew where your workforce gets progressively filled with people who do not switch jobs. It's a dangerous outcome, to be managed with care. If you get stuck with those who do not switch jobs because they are too incompetent, you have a big problem. If you manage to get those who are competent but content, and not very concerned with higher earnings, you have the ideal result: stable, competent, performant team, with controlled costs.