Warum Spitzenfirmen paradoxerweise gute Arbeitskräfte entlassen
Warum Spitzenfirmen paradoxerweise gute Arbeitskräfte entlassen
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Why do the world’s most prestigious firms—such as McKinsey, Goldman Sachs and other elite consulting giants, investment banks, and law practices—hire the brightest talents, train them intensively, and then, after a few years, send many of them packing? A [recent study](https://www.aeaweb.org/articles?id=10.1257/aer.20200169) from the University of Rochester Simon Business School and the University of Wisconsin-Madison (published in the *American Economic Review)* concludes that so-called adverse selection is not a flaw but rather a sign that the system is working precisely as intended.
The study isn’t remotely related to the title of the article. Top consulting firms do not fire top performers. They have powerful incentives to to to keep them. There are, however, mid-level talent people who the system is designed to churn after a couple of years, to the benefit of both. From the article:
>Meanwhile, those who are let go aren’t failures—rather, their exit is part of a system that signals who’s truly top-tier, the researchers argue. In fact, fired workers often find success on their own because potential clients interpret a person’s prior affiliation with a top firm as proof of the worker’s strong ability and qualifications.
>In short, the “up-or-out” path of professional life may not just be a cultural phenomenon among top professional service firms but also an efficient response to how reputation is maintained and information flows. What looks like a ruthless system of constant turnover, the researchers argue, is in reality a finely tuned mechanism that helps the market discover and reward true talent.
Good workers expose incompetent management and aren’t afraid to do so.
The explanation as recounted in the article doesn’t really make sense. It suggests that good employees at elite firms are underpaid when they start because the firm knows their value more than clients do, and lets them go when clients have learned their value (eliminating the informational advantage). But that assumes that had high value when they started. What they gain over the years is not just an opportunity to impress clients, however. It is training, and the reason good employees who are let go end up with successful careers is that future employers know that they’ve been trained by the best. And given what a graduate from a top school can be trusted to do their first year on the job, it isn’t accurate to say they are underpaid at all, let alone due to information asymmetry. If anything, they are overpaid in order to be attracted to work at that firm (because the firm can train very smart people to basic competence for less). They might be underpaid at the moment they are let go (that’s a big maybe), but that is because of training and experience they did not have when they began.
Let me guess. They cutt to much.
At my company the policy was, give the best a higher percentage pay rise and give the less good a smaller percentage.
They didn’t seem to realise that the best were already getting a higher wage.
This article is specifically about the „up or out“ consulting business model and it’s not news to anyone who’s worked in consulting. In fact, these companies recruit on the pitch! „Work for us for a few years, learn some great skills, then use us as a stepping stone to land your corporate gig.“ It’s not a secret, it’s very transparent in the industry.