Working Paper: Impact of COVID-19 Pandemic on Labour Supply and Gross Value Added in India

Author: Xavier Estupinan, Mohit Sharma, Sargam Gupta and Bharti Birla

Title: Impact of COVID-19 Pandemic on Labour Supply and Gross Value Added in India

Abstract: This paper 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 make use of two metrics to estimate the labour supply shock. The first metric is based on whether a worker is employed in an essential or a non-essential industry and second measures the extent to which a worker can perform the work activities remotely. For the latter, we construct a Remote Labour Index (RLI) following Rio-Chanona et al. (2020). Using PLFS (2017-18) we find that 116.18 million (25 percent) and 78.93 million (17 percent) workers were affected in Lockdown 1.0 and Lockdown 2.0, respectively, and are at risk of job loss. To get an extensive impact of COVID-19 pandemic on the labour market in India we carry out an in-depth analysis of labour supply shocks by employment status, industry level, and occupation. The expected monthly wage loss of casual workers and regular and salaried employees is estimated to be Rs. 33.8 thousand crores (in 2017-18 prices). Further, the loss in Gross Value Added (GVA) (at 2011-12 prices) is predicted to be between 13 percent and 19 percent during the lockdown period from 25th March to 31st May 2020. The y-o-y quarterly growth rate forecast of GVA (at 2011-12 prices) for Q1:2020-21 is expected to be between -4.6 percent and -8.8 percent, using the baseline model.

Keywords: COVID-19 Pandemic, Remote Labour Index, Labour Supply Shock, Gross Value Added, ARIMA Modelling

JEL Code: C35, C53, E25, E01, J21, J22, J24, J33, J38