> They are paying more than they have to for the low skilled workers. Which means that extra money is not going towards hiring better high skilled workers or just more workers in general.

> Everything else being equal, an average business would be outcompeted if they did something like that.

You're operating using an oversimple mental model. For instance: you appear to believe a person will make a fixed contribution in a role, regardless of their wage. That's obviously false when you consider things like the demotivating effects of being underpaid or under-appreciated.