Why Top Companies Start by Letting Go of "Talented People" ─ The Paradox of How Being Laid Off Can Accelerate Your Career

The Discomfort of "Why Was That Person Fired?"

In elite firms such as foreign consultancies, investment banks, and top law firms, the selected recruits are top-tier talents gathered from around the world. However, when you look back a few years later, it's not uncommon to encounter cases where you think,
"What, that person was let go?"

In Japan, we often see news of people in their 30s from general trading companies or mega-banks moving to startups. Behind this, there exists a gray zone that's unclear from the outside—whether they left on their own or were let go.

An article published on Phys.org on November 18, 2025, explains this phenomenon of "seemingly talented people disappearing en masse" not through emotional arguments but with an economic model.Phys.org

The article is based on a paper titled "Intermediated Asymmetric Information, Compensation, and Career Prospects" by Ron Kaniel from the University of Rochester and Dmitry Orlov from the University of Wisconsin, published in the American Economic Review.American Economic Association

They argue that the seemingly unreasonable "mass layoffs" and "intense turnover" conducted by elite companies actually create a "paradoxical equilibrium" that benefits both the company and the workers.

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Keywords: "Asymmetric Information" and "Intermediaries"

The starting point of the research is a very simple question.
"Why does the world of professional services bother to sell talent through a company?"

For example, in professions like lawyers, consultants, fund managers, accountants, and architects, the value is ultimately created by individual skills. It seems like clients could directly contract with the person.

However, in reality, many of them belong to large firms and are assigned to projects under that brand. The main reason for the existence of this "company as an intermediary" is asymmetric information.American Economic Association

• Client Side:

  • It's hard to know how competent someone is until they build up a track record

• Company Side:

  • Through interviews, trial periods, and internal evaluations, they can grasp individual abilities faster than outsiders

In other words, companies are in a position to know the "true abilities of individuals" more quickly and accurately than clients. This creates a business opportunity.

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Strategies of "Quiet Period" and "Churning"

Kaniel and Orlov refer to the early career stage as the "quiet period."Phys.org

1. Quiet Period

   • The achievements of young employees who have just joined are not yet visible from the outside

   • Companies pay standard salaries while carefully observing internally

   • At this point, the company understands "who is truly outstanding" better than outsiders

2. Narrowing the Information Gap

   • Through public information like winning lawsuits, investment performance, and successful major projects,
     clients gradually learn about individual abilities

   • Then, clients may start thinking, "This person seems competent, so I want to hire them even if it means paying more,"
     forcing the company to raise that person's salary

This is where the strategy of "churning" comes in.Phys.org

At the timing when the information gap is narrowing,
companies deliberately let go of a certain number of talented individuals.

• From the outside, those who are let go appear as "people who were producing a certain level of results but suddenly disappeared"

• Those who remain are seen as "elites who survived rigorous selection"

Because clients cannot see the internal circumstances,
they are left with the impression that "both those who left and those who stayed seem at least above average."
This results in:

The Result:

• Former employees can easily earn high rewards in the market by leveraging the "former elite firm" label

• Companies maintain the brand of "those who stayed are even more selectively chosen elites,"
  and internally, they can offer themsalaries below market levels and still have them acceptedPhys.org

Thus, a somewhat "black" mechanism is established.

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Are the "Chosen Ones" Actually Exploited at Lower Costs?

The most ironic aspect of this model is that
those who ultimately get exploited the most are the "winners" who remain in the company
.

Companies can implicitly pressure them by saying:

"If we kick you out, outsiders will see you as 'someone removed from that company.'
If you don't want that, endure these conditions for a while."

Of course, the more talented individuals receive more external offers,
and they cannot be kept working cheaply forever.
Nevertheless, as long as **"remaining here itself is a strong signal to the market,"**
they may think, "It's more beneficial to build up achievements and reputation here a bit longer,"
making them more willing to accept slightly unfavorable conditions.Phys.org

The conclusion of the paper is surprising:

• Thanks to such churning, corporate profits actually increase

• Yet, young people continue to choose elite firms as the starting point of their careers

resulting in an equilibrium where "everyone is somewhat happy but feels a bit uneasy."

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Mixed Reactions on Social Media: "Exploitation" or "Rationality"?

When this article was introduced, various reactions erupted on X (formerly Twitter) and LinkedIn (summarized below as typical voices).

• Critics

  • "Aren't they just treating people as 'ammunition for brand enhancement'?"

  • "After working hard to the point of mental exhaustion, being 'strategically fired' is too inhumane."

  • "Even if they say 'we are a company that values people,' I can't trust them."

• Supporters

  • "It's the professional world, so the contract includes the possibility of being a 'stepping stone' from the start."

  • "If former employees are highly valued in the market, isn't it a win-win?"

  • "If meritocracy is taken to the extreme, such a system is inevitable."

• Realists

  • "Those who are fired don't think of themselves as 'strategically released talented individuals.'
    To their families, it's just unemployment, and there are loans to pay."

  • "There's a risk of mixing up the top few percent who are 'positively fired' with those who are 'truly underperforming and cut.'"

In short,while theoretically neat, it's a system that causes significant conflict when considering human emotions and lives, according to the candid impressions of many people.

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Connection with Japan's "Generalist" Culture

While this model primarily considers professional services in the West, there are parts that resonate with Japan as well.

• Mass recruitment of new graduates "just to hire a lot"

• Evaluations are made every few years,

  • with people remaining in prestigious departments

  • being seconded to subsidiaries or affiliated companies

  • or encouraged to change jobs
    .

Even if it appears as "career choices by personal will" on the surface,
there are often cases where a severe internal ranking and selection process is underway.

If internal HR were to think,
"Let's second or transfer those who seem capable of succeeding outside first,
to enhance the 'chosen feeling' of those who remain,"
that would be the churning strategy depicted in the paper itself.

Of course, differences in lifetime employment, employment practices, and labor laws in Japan mean it doesn't function as blatantly as the American model.
Nonetheless,
the structure where the side holding the information first determines the career directionseems common in many large companies.

How Should Individuals Engage with This Game?

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The research primarily explains the rationality from the corporate side, but it also contains many insights for our individual career strategies.

Separating "Brand" from "Ability"

1. The brand of a top firm is indeed a powerful signal,
   but it doesn't last forever.

   • 
     

     It's important to make your achievements visible by specifying what you did on which projects.

Abandon the Idea of "Firing = The End"

2. In this model, those who are fired are not necessarily "losers,"##