This is almost all of it. Anyone (even incompetent managers) can identify productive employees after working with them for a few months/year. And all the interview processes in the world aren't entirely effective in finding them before.

So if you're flush with cash just wildly overhire and then let go those you couldn't find a place for. And that won't even necessarily be all the "bad hires" because most people can do some job well, you just need to transfer them to it. (Otherwise you have to admit that there are people not fit for working at all, and they must starve in the street or something.)

I thought you couldn't lay someone off for performance reasons.

I work in finance and every finance employer requires some sort of pre-req or onsite test during a serious 1st/2nd round interview.