Your employee of 10y that does work of 3 people asks for a pay rise of 30% to match a pay that's on the market.
You refuse it and he goes away to a different job.
You have a very hard time to hire someone to replace him but you do it.
The replacement employee that supposed to do the same job can't and only does 1/3 of the original employee for the same price as the previous employee.
You now need to find someone else to do the other 2/3 of the work.
You now hire a second employee to just do another 1/3 of original work and another freelancer who does other 1/3 of work.
In summary, instead of giving 30% raise you end up spending 100% on salaries.
Profit