So... the system is kind of broken to begin with, and it's kind of pointless to try to assess its performance.
Also, it would obviously make a lot of difference if you had a hundred of users with only a handful being active users, or if you had a hundred of active users. I meant active users. Running programs all the time.
NB. You might have heard about this language called Python. Upon starting the interpreter it reads /etc/passwd (because it needs to populate some "static" data in os module). Bet a bunch of similar tools do the same thing. If you have a bunch of users all running Python scripts while there are some changes to the user directory... things are going to get interesting.