You're thinking of it as employees asking for handouts for no reason. Not at all.
The raise request is a courtesy notice
They are telling you that they are thinking about money and their market value, and they are either looking or already have found a better offer elsewhere.
“I need a raise” - “No” - “Here’s my notice” ... is exactly the sequence you should expect, especially if their salary is under market (you are supposed to know if that is true).
But there’s another very important subtext.
It’s also a vote of confidence, for your business
In essence they are saying “But all things being equal, I’d rather stay here”.
They don’t need to say that; they can simply hand in notice and say “no” to your counteroffer (which may well be the very same raise they are asking for; in fact, you might start negotiating after they drop notice, and discover you can keep them for that raise or somewhat better.)
They are inviting you to “make things equal”, and they are saying they will stay if you do.
Rejecting out of hand is a jerk thing to do
If you play the Ebenezer Scrooge game and refuse on general cheapness’ principle, that’s back to the belief that employees ask for raises because they are lazy and money-grubbing. And that is what employees will think if you do reject them.
So if it’s not possible, you better have a reasonable and believable reason why. Not a stock or off-hand reason, not the kind of lies that companies warble in press releases that we all know is BS.
For instance if the company is small enough, you might just show quarterly statements. “Look, here’s what COVID is doing to us”. Etc.
Maybe YOU should be looking around
Some people get into a job and they just want to plotz in that job. They’ll do a good job but they also subconsciously don’t want any moving cheese: they like things the way they are. E.G. they don’t actively search the job market while happily employed, because they dislike/dread the process. They also don’t understand why other employees would want to change so much.
Think hard on whether that is you. If it is, it might be very much worth your whilte to “snap out of it” and truly re-evaluate your own market worth. And do what all those folks are doing; shop for better work and seek a raise yourself.
Not least, it’ll help you understand them better. Because they certainly expect you to grasp all this!