Covid-19: How India fared during lockdown

By Ruchira Boss, Devesh Roy, Sunil Saroj & Mamata Pradhan

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Possibly even more than a public health crisis, Covid-19 is an economic crisis manifested most severely in the labour market. In the face of the pandemic, the structure of the labour market typifies the extreme vulnerability of workers in India. With Covid-19 and the resultant lockdowns, there has been a significant discourse on employment, although often without relevant and representative data.

The recently released quarterly bulletin report of the Periodic Labour Force Survey (PLFS), April-June 2020, offers an opportunity to revisit employment questions related to Covid-19.
Comparing year-on-year (y-o-y) 2020 with 2019, and quarter-on-quarter (q-o-q) within 2020, a truer picture of the labour market’s effects emerges. This article highlights the 10 distinctive findings on the Covid-19’s impact on the urban labour market.

1. Casual labour and distress-driven micro-entrepreneurship dominated employment, with a 75% share. With less than 10% workers having social security or job contract, an overwhelming number of the 380 million workers were critically exposed.

2. In a comparative sense, Covid-19 is probably the greatest labour market shock in the short to medium run that India has ever witnessed. Unemployment rate got pushed higher than episodes of demonetisation and the hiccups period of GST introduction (see graphics). This was expected; Covid-19, a correlated shock, affected all the sectors with both demand and supply effects. The other two were comparatively sector/industry-specific and adjustments out there worked through repositioning the activity, timing or mode of payment, and some learning.

Finally, some surge sectors protected employment—essential services such as grocery, banks, ATMs, gas stations and over-the-counter drugs.

3. Unemployment rate has been 8.3% for men, and for women it was 11.3% in 2018-19 second quarter. It jumped to 20.8% for men and 21.2% for women in 2020. Thus, it has been broadly equal, with slightly smaller increase for women, albeit with strikingly lower labour force participation rate (LFPR) at 21%. This contrasts somewhat with the global experience on most recessions, where male employment is comparatively affected (greater cyclical component-construction, transportation), while women are comparatively into stable jobs such as services and government. During lockdown, the places where women unemployment rate surpassed men are Madhya Pradesh, West Bengal, Karnataka, Gujarat and Jharkhand.

4. Variation in stringency of lockdowns (proxied by disease caseload) approximately explains differences in employment. The question is: Did the tail (unemployment rate) wag the dog (disease caseload) or did the dog wag the tail? Comparing the quarter April-June 2019 with the same in 2020, in Maharashtra, Tamil Nadu and New Delhi (high disease caseload), the urban unemployment rate increased fourfold for males and twofold for females. The sharp increases were also due to one-third workers being engaged in Covid-19 vulnerable occupations (identified by the International Labour Organisation and in primary occupations).

5. Expectedly, effects varied between migrant donor and recipient states (usually high disease caseload being industrial and urban clusters). These states also have highest employment of casual labour, implying high shock exposure of labour. The PLFS shows labour supply constriction outweighed demand contraction in high disease caseload states.

6. The lockdown impacted daily-wage earners and primary occupations like street-vendors, and taxi and auto drivers disproportionately. Notably, even salaried jobs in comparatively formal employment were affected. By the end of the lockdown period, the informal sector picked up comparatively quickly. Also, a shift towards self-employment occurred, i.e. possibly distress-driven (CMIE). The number of employee provident fund (EPF) accounts that closed during April-December 2020 increased by 6.5% relative to the previous year.

7. Manufacturing was probably the worst affected from the labour supply shock, reflected in part by a sharp reduction in industrial production in the second quarter of 2020. Sector-wise, the worst employment effects were in mining, manufacturing, electricity, and consumer durables sectors.

8. Beyond the unemployment rate, long lockdowns also affected the LFPR by sector. Only in Rajasthan and Madhya Pradesh did workers shift from services to manufacturing during the April-June 2020 period compared to April-June 2019. In Maharashtra, Jharkhand, Uttarakhand, Kerala and Andhra Pradesh, workers shifted from manufacturing to services sector during April-June 2020 compared to April-June 2019.

9. Unemployment was worst affected (higher than 15 percentage points) in locations with comparatively high services’ employment share, such as Karnataka, Maharashtra and Andhra Pradesh (combined 69% services’ employment share). Rajasthan, with high tourism dependence, saw decrease in male employment in the services sector. The other tourism state, Uttarakhand, saw y-o-y increase (12% for males) in the services sector, possibly due to comparatively unaffected religious tourism. Jharkhand experienced one of the sharpest increases in unemployment rate with 40% workforce engaged in construction, retail trade, transport, and manufacturing industries.

10. Finally, some surge sectors protected employment—essential services such as grocery, banks, ATMs, gas stations and over-the-counter drugs.

Authors are with the International Food Policy Research Institute. Views are personal