For a start all implementations of such protections i'm aware of don't apply till you have over X employees which rules out your specific example. eg. Australia allows businesses with under 15 employees to fire at will. Small businesses have very little employee protection for exactly the reason you stated; You need to be able to hire/fire since each individual employee is such a large part of your workforce. It's generally understood that if you work for a small employer you are more at risk because of this. Large employers are seen as a safer job.
So these protections are always tradeoffs. You can actually earn more at the smaller companies and those places are typically good to get your foot in the door. The larger companies where these protections apply can afford to follow the process and having the process there gives stability that some people need in a career.
I actually think it comes down to the viewpoints on careers. There's no risk to any particular business since the laws are written to only target business that can reasonably follow the process. There is a different viewpoint on working at bigger stable companies vs smaller companies though. One's seen as a stable career and the others seen as temporary (of course exceptions apply).
So these protections are always tradeoffs. You can actually earn more at the smaller companies and those places are typically good to get your foot in the door. The larger companies where these protections apply can afford to follow the process and having the process there gives stability that some people need in a career.
I actually think it comes down to the viewpoints on careers. There's no risk to any particular business since the laws are written to only target business that can reasonably follow the process. There is a different viewpoint on working at bigger stable companies vs smaller companies though. One's seen as a stable career and the others seen as temporary (of course exceptions apply).