The employees who stay get paid more than if everyone stayed. Same idea as with unions, you're splitting the pie into less slices so each is bigger.
As someone who survived numerous rounds of layoffs, that's not true. The employees who stay get to work more (under more job security pressure) but that's about it. It's not like the wages of the workers who get laid off are reallocated as bonuses for the remaining employees.
It isn't like if Google fired 95% of people that comp for the remainder would hit $10m a person.