Early in my career, I was in a big organization, surrounded by people like this. Our direct manager was not competent to assess their work output on any technical level. He might not have cared anyway, since the true measure of management is how large your pool of subordinates is.
It was truly soul-sucking to be surrounded by such mediocrity. I'm all for work-life balance, but having counterparts who accomplish so little is demoralizing.
I can almost convince myself that there's a strategy in it -- with 15 people doing the work of 3 people, a very large bus accident will probably have very little impact on business operations.
It killed me though. I left and went into consulting for a few years. Then startups, where 3 people are expected to do the work of 15. Which can be its own problem, of course!
The aforementioned co-workers? Still at the same place, and honestly they're probably pretty safe (financial industry, revenue is barely affected by macro economy). Goodness help them if they ever need a new job.
EDIT: Nowadays, I hire and manage people. My expectation of the team is to be "productive" about 20hrs/wk, ebbing and flowing according to personal life flux, but making an honest attempt to give the rest of us enough to rely on.
I hope to hire the kinds of people who will use some part of the remaining time to reflect on how to improve something, somewhere -- sometimes including our work product or processes. This is where the interesting stuff happens, when it does.
Low output engineers can often coast for years before something forces them back on to the job market. Usually, routine layoffs force companies to take a hard look at who's producing and who's not, at which point the lowest productivity individuals are the most likely to be cut.
This is where the real problems begin: If someone has spent years or even a decade doing very little actual work, they're now effectively years behind their peers with similar career lengths. Even if they could cram enough to skate through interviews, they can struggle when forced to work at normal productivity levels in a normal organization. Years of accumulated habits can be hard to break.
I've interviewed a significant number of employees who (I suspect) fit this mold: They landed an easy job at a big company that didn't look too closely at their output, spent years coasting while doing little work as possible, but then something forces them out of the job and into interviews at other companies. It's surreal to speak to someone with a decade of confirmed experience but a level of knowledge equivalent to what I see out of the average motivated college graduate.