Pandemic Crises: Employment Effects

    Virmani and Bhasin (2020) have estimated the effects of Lockdown and Pandemic Crisis on the Indian Economy. One of the key analytical devices in this paper was to divide the economy into three parts: Essential Commodities and Services, Contact Services and Rest of the Economy. The lest is better labelled as Manufacturing, Mining, Construction & Allied Services (MMC&AS). In this note I estimate the employment in each of these three sectors, with a view to taking the analysis forward in terms of the employment effects of the Pandemic and the Lockdown

  The estimates of employment in the three sub-aggregates are summarized in table 1. The most significant result of this exercise is that Essential Commodities (good & services), which are largely unaffected by the Lockdown employ a 15% larger proportion of the workforce (55%) then their contribution to Gross Value added (40%). State Govts, which plan to extend the Lockdown beyond May 3, must ensure that the entire supply chain for this sub-sector is not disturbed by administrative failures at intra state, Nagarpalika or Panchayat level. 

Table 1: Estimated Employment in Major Sub-aggregates 2018-19

 

 Note: MMC&AS = Manufacturing, Mining, Construction & Allied Services, ROE = Rest of Economy.

Source: Authors calculation based on CRISIL(2020, april 30)

     The second noticeable fact is that the share of employment in MMC&AS sectors is about 2/3^rd of its share in GVA. This lifting of lockdown in this sub-aggregate must encompass goods transport, critical both to delivery of inputs into production and supply of finished goods to markets and public (bus) transport for workers from home to workplace and back.  MMC&AS has a significant number of Self-employed (4.7 cr) of which 2.4 crore are in Manufacturing and casual workers (5.9 crore) of which 4.5 crore are in construction (table 1). It is, therefore, especially important to phase out the lockdown in these sectors as quickly as feasible, subject to the following Socio-Spatial Distancing Rules and conditions to minimize the transmission of the Communicable SARS Corona Virus 2.

a)       Section 144+: No physical meeting of >4 unrelated adults in Public spaces, Religious or semi-private place.

b)      Physical Distancing (2-3m) by individuals outside home, including customers, workers, commuters, individuals in public spaces (e.g. Parks, roads, local shops)

c)       Compulsory mask wearing by all individuals outside their home.

d)      Intensified protocol for hand washing, toilet cleanliness in workplace & public toilets.

e)      Evaluation (temp, travel history, Arogya app) and/or testing of workers/customers entering factory, office, shop or another establishment. Home quarantine of suspected/identified cases.

  In freeing up agricultural, mineral and industrial production and transport of workers, inputs & outputs some differentiation will have to be introduced on the whole sale and retail side of the supply chain.  To reduce the need for public to congregate in shops and markets, home delivery of all above goods, must be decontrolled for duration of the crisis. Though stand-alone wholesale/retail sales outlets can be opened early, mass retail/wholesale markets for goods will have to be carefully evaluated with respect to pop density and COVID cases in catchment area and phased accordingly.

  The third noticeable fact is that, the share of Contact Services (Public Transport, Retail Trade, Hotels and Restaurants) in total employment is about the same as its share of total GVA. More than half these workers are self-employed workers (2.6 crore), 60% of who are in Trade (1.7 crore). State govts will therefore have to continue to focus on providing financial support to these workers as they are likely to continue to be affected by the crisis even after the Lockdown is completely phased out (table 1). The introduction of an Aadhar linked, mobile payment based, Cash Transfer system, should be accelerated by all States to reach them.

   Within the contact services, personal services (e.g. at 1/2 capacity) and Hotels & Restaurants, should be phased slowly keeping in mind the ease or difficulty of enforcing the rules outlined above. For instance, Restaurants (free-standing or in Hotels), with attached gardens or open terrace can be allowed to open earlier. Given the large number of self-employed workers in Trade (2.6 crore) the phasing out of restrictions on this sub-sector will be particularly challenging.

    I estimate the employment effect of the one month lock down in April 2020 as approximately 21 crore workers sitting at home. Of these an estimated 7.7 crore were formal workers who were still receiving whole or part of their wages and salary, while the remaining 13.3 crore were living on their accumulated saving or welfare transfers from government or Non-profit organizations. 

    It should be noted in this context is that all workers purchases were limited by the lockdown to essential commodities alone, as no other goods or services were allowed to be sold. Essential goods and services constitute ~30% of the consumption basket of the middle class and a maximum of 50% of the consumption of the poor. Thus transfer of food or transfer payments of ½ of normal wage earnings of the self-employed and casual workers would have been sufficient for their survival. Further, formal sector workers receiving more than 30% of their normal wages, would have saved all the rest, thus increasing their accumulated net savings (i.e. net of debt). Thus those who had a wage cut of 30% saved an estimated 40% of their normal wages while those receiving their full salary saved 70% of their salary.

   CMIE survey data suggest (April data incomplete) that the Unemployment rate has risen from 8.7 % in March, 2020 to 23-24% in April. The 15 per cent point increase in the Unemployment rate can tentatively be attributed to the effect of the lockdown. 

References

Virmani, Arvind and Bhasin, Karan (2020) “Growth Implications of Pandemic: Indian Economy”,  https://egrowfoundation.org/research/growth-implications-of-pandemic-indian-economy/ .

CRISIL (2020, April 30), “Viral Fever: Covid-19 impact on economy, corporate revenue and profitability."