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  • Writer's pictureJoséphine Borie

The new paradigm of work and the importance of human capital

The Big Quit is a societal movement connected with the Covid-19 pandemic and part of the history of resistance to work. The phenomenon began across the Atlantic and is spreading to European countries, especially France : according to a Dares study, "at the end of 2021 and the beginning of 2022, the number of resignations will reach a historically high level, with nearly 520,000 resignations per quarter, including 470,000 resignations from open-ended contracts". It seems that Covid-19 has induced workers to rethink their careers, their working conditions, and their long-term goals.

Freelancing, or self-employment, is one of the responses to this reflection. Actually, between 2020 and 2021, the number of freelancers registered on Malt, a platform for independent workers, increased by 39%. Workers' enthusiasm for freelancing does not seem to be the result of a scarcity of salaried employment (according to INSEE figures, in 2021, the French economy will have 697,400 more salaried jobs in the private or public sector over one year, i.e. an increase of 3% compared to the pre-sanitary crisis period), but rather of an individual's desire to take full possession of his or her human capital.

How does the history of economic theories explain the phenomenon at work here and on the evolution of the relationship to work ?

Labour, a factor of production, source of value

In the 18th century, the term "work" found its unity. In The Inquiry into the Wealth of Nations, Adam Smith defines it as that human or machine power which makes it possible to create value; in other words, labour is that factor of production of 'value'.

It is this physical expenditure, yes, but also what allows universal exchange because all the goods we exchange contain labour. David Ricardo added that labour is the standard for measuring the value of goods and services.

Another of Smith's additions to economic theory is that human labour itself can have a price and is thus subject to purchase and/or sale. It's with this in mind that it is possible to consider that human activity can be detached from its subject and thus be sold and/or rented.

Work, a component of an unbalanced system ?

In the 18th century, and with the work of Karl Marx, work is defined as all the productions of human activity. But work totally exhausts man, his vocation being solely to produce, in an unbalanced system between the Bourgeoisie and the Proletariat

Indeed, how can we reconcile equivalent exchange, regulated by the equality of the quantities of labour incorporated in the goods, with the presence of a surplus of value at the origin of profit, of surplus value ? In Marxist theory, there is a disconnection between the labour incorporated in two goods and their exchange values, since as labour is paid below its value. Thus, labour exists only in a particular relationship, governed by the maximum appropriation of the worker's labor.

Work, the result of personal talent, remunerated at an "equilibrium" price

In his book Elements of Pure Economics or the theory of social wealth, Léon Walras wrote : « a man, in such a society, is always rich at least in his personal faculties, which constitute a capital of which labour is the income ».

Personal faculties are defined as a natural and perishable capital, which is at the origin of the creation of a good and/or a service, in exchange for a wage. According to the author, individuals are the owners of their personal faculties, their work, and the price of their work.

Léon Walras is a member of the neoclassical economics, where market equilibrium was the major concern.. In the labour market, supply and demand meet perfectly : competition from workers supports entrepreneurs and competition from entrepreneurs protects workers ; the wage level is theoretically said to reflect "a equilibrium".

The marginalist revolution, initiated by Alfred Marshall, has two consequences.

On the one hand, labour is no longer viewed in its relationship to value: the equilibrium of markets is analysed from the point of view of the relationship between the marginal utility of a good and its marginal cost. In this sense, the value of labor derives from the marginal productivity of labor, which defines the share of income from the sale of goods or services that goes to the labour factor. In other words, labour is then considered like all other factors of production which, through their marginal productivity level, will generate income.

The other contribution of the marginalist approach is the integration of a 'psychological' component. People are re-integrated into the analysis because they behave in a way that does not correspond to their economic interest (homo-economicus) but to their personal "inclinations". These behaviours are considered as exogenous variables in the economic analysis ; variables with which we have to deal. The person makes decisions about his or her capital allocation based on market conditions, but also on social or physiological behavior.

All capitalists !

At this stage of economic science, labour is no longer the counterpart of the income flows derived from a person's capital, i.e. his human capital. Only the Marxist paradigm still speaks of labor, focusing on the relationship between the factors of production: labor and capital.

Human capital analysis was the next step, under the lead of Gary Becker (Nobel Prize in Economics, 1962) who introduced this concept of "human capital":

This a set of skills acquired by an individual during his or her education and career, contributing to distinguish him or her and make him or her a valuable resource. There is thus a real investment by households in education, which allows them to benefit from a capital asset on the job market. labor offering behavior of people on the market is modified according to their human capital, as they seek higher remuneration: the most qualified individuals are prepared to experience a longer period of inactivity while waiting to find a job offer in line with their aspirations.

Human capital theory takes up the idea that sociological and psychological factors should be considered as variables that are imposed on the analysis.

In the continuity of this Approach, placing people, their capacities and choices at the heart of economic reflection, the theory of implicit contracts shows that people accept an open-ended contract only if they have a long-term vision of the company. Otherwise, they will accept wage fluctuations by confronting the more volatile, but potentially more lucrative, job market. People who sold their labour power in the 19th century has become owners of a capital from which they can draw income depending on how they decides to use it.

Freelancing, regaining possession of one's capital

The history and evolution of economic thought, in some way related to work, allows us to understand the phenomenon of the Big quit, associated with the development of freelancing. While labour has traditionally been analysed as a factor of production, a source of value, in an unbalanced or perfect system (depending on the school of thought), contemporary movements highlight the essence of work, people, and their skills.

The shift from an industrial economy to a service economy and recent technological developments are paving the way for the development of freelancing. This societal phenomenon is the result not only of structural transformations, but also of a growing awareness of the power of human capital and its potential for emancipation from organizational structures. People re-own their capital, and the company is no longer the only means to exploit and value it through a salary.

However, freelancing does not affect all socio-professional categories. In fact, the transition from salaried employment to freelancing depends on the strength of the human capital held on the market and its ability to be monetised. According to a study by (based on public data from Urssaf and Insee), 76% of the self-employed have higher education qualifications. Thus, the Big Quit movement affects especially white-collar workers and, according to the same study, the most affected professions, as the following graph shows.

While human capital confers power on its holder, in a given market, this is not without reminding us that it is both perishable and evolving. Human capital can indeed depreciate if the skills acquired are not maintained in good condition or updated through regular use or upgrading. We can therefore question the ability of the freelancer to maintain his or her level of human capital during his or her working life.

While the firm provides a fertile link between human capital and organisational capital through community and the sharing of knowledge and experience, it can also be a place where human capital declines. What about freelancing? How does the freelancer manage to keep his or her human capital up to date ?

The question of human capital, its perpetual development and its full possession thus seems to lie between freelancing and the company that can grant people intellectual compensation in proportion to his investment in his own capital.

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