Just about every company I have ever worked for has been very hesitant to fire, and it's really detrimental to the company, its customers and its employees. The end result is usually the good employees move on. My girlfriend works for the federal government and there it's basically impossible to get fired. The end result for her is a very miserable work environment. She is actively seeking other jobs.
I can't seem to find the study at the moment, but I recall reading one that found that, indeed, never firing people can have a detrimental effect on morale, and firing long-term poor performers can improve it. However, they found that this was basically a one-time "cleanup" effect, and that attempting to make it recurring via a regular, institutionalized system of firing poor performers (e.g. based on annual performance reviews) had the opposite effect, lowering morale as everyone was constantly worried about the next review, including people who objectively had almost no chance of falling below the threshhold.
