Impact of COVID-19 Pandemic on Labour Supply, Wages and Gross Value Added in India

Abstract

This article estimates the first-order supply shock through labour supply reduction associated with the containment measures taken by the Government of India to control COVID-19 spread. We provide the estimates for Lockdown 1.0 and Lockdown 2.0, from 25 March to 3 May 2020, when india had the highest stringency measures in the world. To get an extensive impact of the COVID-19 pandemic on the labour market, we carry out an in-depth analysis of labour supply shocks by employment status, industry level and occupation. The workers impacted are those who work in a non-essential industry and are not able to work from home. To identify jobs that cannot be done from home, we use a novel approach and construct an occupation-based Remote Labour Index (RLI) for India. Using the PLFS (2017–2018) we find that 116.18 million (25% of the total employed) and 78.93 million (17% of total employed) workers were affected during Lockdown 1.0 and Lockdown 2.0, respectively. The expected monthly wage and income loss to workers is estimated to be Rs. 864.5 billion (2017–2018 prices). Further, the reduction of Gross Value Added (2012–2012 prices) is estimated at 14% compared to a no-COVID scenario. JEL Classification Codes: E01, J21, J22, J24, J33, J38