Employment, income in India during and after lockdown: A V-shape recovery?

As India emerges from its long lockdown, several indicators have suggested signs of a V-shape recovery. One such indicator is the unemployment rate. After skyrocketing to nearly 25 per cent in April and May, the unemployment rate returned by July to its February level of around 7 per cent where it has remained since.

However, the unemployment rate provides an incomplete picture of labour market conditions and of the ongoing experiences of Indian households. It calculates employment as a share of the labour force, which only includes those that are employed and those that are actively looking for work. A back-to-normal unemployment rate may mask workers exiting the labour force if they cannot find work, or because of health concerns. Furthermore, even if most Indians have returned to work, available labour market opportunities may have worsened, translating into lower incomes and reduced consumption and well-being.

Our analysis of data from the CMIE’s Consumer Pyramids Household Survey (CPHS), a panel survey of approximately 175,000 households, confirms these concerns and reveals a less complete labour market recovery than what one might conclude solely based on the unemployment figures.

First, the employment to population ratio (or “EPOP,” which includes the full working-age population) has not yet returned to its pre-lockdown level. After a collapse in April and May, the EPOP among those 15 years of age or older has hovered around 37 to 38 per cent between July and October, from a base of closer to 40 per cent pre-lockdown.

The drop in EPOP has not been evenly spread across groups, with the largest losses among urban women, young workers, and those at both ends of the educational attainment distribution. For urban women, it has fallen to approximately 80 per cent of its pre-pandemic level. Similarly, workers aged 20-24 are only at 78 per cent of their pre-lockdown level of employment. Finally, those with a primary school education or less as well those with a college education are at roughly 80 per cent of their previous levels.

Furthermore, the EPOP includes a large number of individuals who report being employed but working zero hours (which may account for some workers expecting, rationally or not, to be recalled by their employer at some point in the future). When such individuals are excluded, the EPOP declines even further, to 34 per cent in August (the latest month in which we can compute this series) compared to its pre-pandemic level of approximately 38 per cent.

In addition to job losses, income may remain depressed if individuals earn less in the same occupation. Our analysis reveals widespread drops in wage income across many occupation groups. While substantial recovery had occurred by June (the latest month of data availability), median wage incomes remained depressed in about 80 per cent of occupations in that month. Wage income losses during the lockdown were substantially larger among lower income occupations, though this relationship has attenuated post lockdown.

The continuing depression in EPOP and labour market earnings have led to corresponding reductions in household income per capita. The chart presents the monthly time series of household per capita income, disaggregated by source of income, through June. Total income per capita was about 44 per cent lower in April 2020 and 39 per cent lower in May 2020 compared to the same months in 2019. Despite an uptick when the lockdown eased, per capita total income in June 2020 remained about 25 per cent lower than the same month last year.

However, these numbers may overstate the decline due to lockdown and associated Covid-related disruptions, as both total income and labour income were already trending down in the last quarter of 2019 and early 2020. This is consistent with a broad downward trend in the economy even before the pandemic. When benchmarked to February 2020, June total incomes are 17 per cent down.

The drop in total income during the lockdown was primarily driven by a sharp drop in labour income, but was supplemented by a decline in business profits. Unlike labour income, business income does not show any sign of recovery by June, remaining at 31 per cent below its June 2019 level.

While government assistance via direct benefit transfers increased during the lockdown, cash transfers represent such a small proportion of total income that they played virtually no role in stabilising income for the average Indian household during the lockdown. This does not rule out that other forms of government support, such as wage income via MGNREGS, or in-kind transfers via the Public Distribution System may have helped many households during or after the lockdown.

Differential recovery patterns by income group and geography are central questions for assessing subsequent policy responses. During the lockdown, income losses were more pronounced among households in the bottom 90 per cent of the income distribution; however, these households also experienced a faster recovery post-lockdown such that by June 2020, their incomes were 18 per cent below January 2020 levels (in April, this drop was 41 per cent). Remarkably, while households in the top decile fared better during lockdown (about a 24 per cent income drop compared to January 2020), that decline worsened in June (to a 32 per cent drop). However, per capita income in this highest income group was already trending down prior to the lockdown, suggesting that other economic forces could also be at play.

Finally, the data reveal clear differences across regions in the extent of the recovery. The greatest per capita income losses during the lockdown occurred in Chhattisgarh, Delhi, Jharkhand, Kerala, Meghalaya, Puducherry, and Tamil Nadu. While similarly battered during the lockdown, these areas have had different experiences post-lockdown: for Chhattisgarh, Delhi and Puducherry, per capita incomes in June 2020 were 40 to 55 per cent below their June 2019 levels; however, Jharkhand, Kerala, and Tamil Nadu fared better, registering year-on-year income drops of 20 to 30 per cent by June. Surprisingly, Meghalaya and a few other regions like Assam, Chandigarh, and Karnataka, regained nearly all of the lost ground, with income per capita at most 5 per cent lower in June 2020 relative to June 2019.


Marianne Bertrand is the Chris P Dialynas Distinguished Service Professor of Economics, University of Chicago Booth School of Business, and Faculty Director, Chicago Booth's Rustandy Center for Social Sector Innovation and UChicago’s Poverty Lab; Rebecca Dizon-Ross is Associate Professor, University of Chicago Booth School of Business; Kaushik Krishnan is Chief Economist,  Centre for Monitoring Indian Economy (CMIE); and Heather Schofield is Assistant Professor, Perelman School of Medicine and The Wharton School.



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