Background: When you engage in an employment contract, these are the stipulations that you make:
The worker will give the employer X hours per week of their time (this is a meaningful distinction from "the worker will do X work for the employer"), and in exchange the company will give them Y dollars (or other local currency) per year (this is known as a "salary"). If the employee fails to give X hours of their time, or the employee has other issues (behavioural/disciplinary, productivity, etc), then the employee will cease to receive their salary and be dismissed from their requirement to give their time (this is known as "firing").
Therefore, so long as a person can be fired, the person has incentive to work hard, because if they don't then they can be fired. Conversely, so long as they are not actively being fired, they have the incentive to work hard, so that they can continue the terms of their contract and retain their salary.
What seems to have happened here is that both of these premises have been simultaneously violated: Your company has threatened to fire these people (by putting them on a PIP, which almost always ends in firing), while also not actually bring able to fire them. They have lost both "the carrot" (continuing to receive a salary into the future), by having their continuation of reward for doing good work removed, and also "the stick", by not being able to be actually fired, the standard punishment for not doing good work. And so, as they no longer have incentive to do good work, nor a punishment for doing bad work, they have decided to simply stop caring. Which is the very obvious and natural reaction to such a situation.
As for what your company/team should do about this: You need to either reinstate the incentive, or to reinstate the punishment. Regarding the incentive, if these people are doing acceptable work, then take them off the PIP (try to mask this as best you can to make it not sound like they were never on a real PIP to begin with). Encourage them to do better work as much as they can. This might be hard, because they did no work and then got taken off their PIP, so this is basically an outright statement that the threat of being fired never existed, so they're not likely to improve. But maybe they will, out of "good will" or whatever.
Conversely, you can reinstate the punishment. Which means actively recruiting for replacements for these people. People are always looking for jobs, and I assure you if you recruit then you will get applicants. Now, the issue is getting "suitable" applicants. Which brings me to the next point: There is an old adage: "Beggars can't be choosers". Your company is (or has a reputation as) a crappy place to work for, as you have described, as a "pressure cooker" and so on. And yet, you have a high recruiting bar for applicants. So good people don't want to work there because of the rough environment, but you won't hire anyone except for the best people. Which means you can't hire anyone. So, one of these things needs to change: Either your company needs to reverse its image as a high-pressure company to get better applicants, or it needs to lower its hiring bar to accept lower standards and get people in the door. Otherwise, you're a beggar trying to be a chooser.
In short, it sounds like this question needs to be asked to management, not to this message board, because the choices that need to be made here, need to be made by management. And if management won't budge, and your team is being punished for having this dead weight, then perhaps it's time to look for a new team (or new company).