Elite firms like McKinsey and Goldman Sachs often hire top talent only to let many employees go after a few years. A study published in the American Economic Review reveals that this practice, known as "churning," is a calculated strategy rather than a flaw in the system. Researchers Ron Kaniel and Dmitry Orlov argue that the turnover helps firms maintain their reputation and maximize profits by signaling the quality of their remaining employees. Initially, firms have an edge in assessing employee talent, allowing them to keep those who meet performance standards. Over time, as employees' public performances become more visible, the firm's informational advantage diminishes. It then becomes necessary for firms to let go of some workers who are only slightly less skilled than their peers. This approach not only boosts the firm's standing but also enhances the reputations of those who remain, who can later command higher fees when they leave. The study highlights a paradox where employees accept lower pay in exchange for the prestige of staying with a top firm. This creates a stable equilibrium: workers are willing to be underpaid temporarily to signal their elite status while firms benefit from the ability to extract greater profits by threatening to let employees go. Those who are fired often find success in their subsequent roles, as clients view their prior association with a prestigious firm as an indicator of capability. The findings illustrate that the "up-or-out" culture in these firms effectively manages reputation and information flow in a competitive market.