Why top firms fire good workers
2 days ago
- #economic research
- #talent management
- #corporate culture
- Elite firms use a 'revolving door' culture to signal talent and boost profits.
- Adverse selection in hiring and firing is intentional, not a flaw, to maintain firm reputation.
- Firms initially have an informational advantage over clients in assessing employee talent.
- Over time, public performance reduces this advantage, leading firms to 'churn' employees.
- Churning strategically fires employees to enhance the reputation of those who remain.
- Employees who stay accept lower pay for the reputational benefits of elite firm association.
- Fired employees often succeed elsewhere, leveraging their prior elite firm affiliation.
- The system creates a stable equilibrium where both firms and employees benefit.
- The 'up-or-out' path is an efficient mechanism for maintaining reputation and information flow.