You have to pay for unemployment insurance. The more people who make claims against you, the higher your insurance gets. You probably aren't going to get charged 100% of the employee's unemployment, but you get charged a goodly chunk.
That makes the cost of a replacement employee higher because you're paying for the cost of prior employees' unemployment claims when you are making unemployment contributions for the new employee.
For more details, go to the source: http://www.irs.gov/businesses/small/article/0,,id=99921,00.h...
Edit: talk to your own attorney though.
In other countries where employee protections are better there is usually an actual written contract in place that says employment must continue up to two months after notice is given from either party.
And yes, that does make contractors more practical but that's good because it pushes contract rates up.