why?

don't understand how it works out for them though. Hiring is so much more expensive than retaining

You're using logic, and that may trip you up here.

Hiring is spread out into different cost buckets, whereas a 20% hit to one resource's payroll stays in payroll.

You see if you slice the cake enough times. There becomes more cake.

That's called accounting.

Many of the most wealthy and powerful companies in our world have never made a profit. Many times, companies succeed by currying the favor of the rich and powerful more so than anything else.

Do you really think they'd try to drive you out after giving you a raise to stay?

I think most of these companies as a whole are pretty evil, but your middle-managment boss or random HR rep is probably happy that you got more money out of the deal. They're a cog in the machine just like you.

If you legit have an offer from a different company take it.

No way. You might walk through the door at the other company, realise it's a horrible place to work, and hand in your resignation at lunch time.

Take the pay rise. If they fire you a month later, you'll at least get a big severance package to cover your living expenses while you look for a new job. If you quit, then quit again, you're going to be delivering pizza's or something while you look for a decent paying job.