Data Focus

How the labour market reacted to the Covid-19 triggered lockdowns

Radheshyam Jadhav Pune | Updated on April 11, 2021

Data show that only 43% of those in informal jobs in Dec 2019 retained them in April 2020 Vs 72% in formal sector

About 1.23 crore migrant labourers returned to their home States during the Covid – 19 lockdowns during 2020 and once again many State governments including Maharashtra government are considering lockdowns to curb rising Covid-19 cases. While industrial and business sectors are strongly opposing the move, labourers face another livelihood crisis and horrifying journey to their home States.

About 67 per cent (61,34,943) migrant labourers who returned to their home State in the 2020 lockdown were from Uttar Pradesh, Bihar, West Bengal, Rajasthan and Odisha. According to the Ministry of Labour and Employment most of these migrant workers have returned to their workplaces and have resumed productive employment.

But what happened to livelihood and wages of workers including formal and informal workers last year?

A World Bank Group’s policy research working paper has found that the differential labour market shock experienced by informal wage workers during the national lockdown due to Covid -19 pandemic in 2020 did not persist for long. After April-May 2020, the labour market outcomes of informal workers began recovering towards their pre-Covid levels faster than those of their formal counterparts.

By August 2020, there was no longer a significant differential between informal and formal wage workers in terms of the decline in the employment rate or income from pre-Covid levels according to the policy research working paper tiled ‘Workers at Risk Panel - Data Evidence on the Covid-19 Labour Market Crisis in India’ by Maurizio Bussolo, Ananya Kotia and Siddharth Sharma.

By August 2020, six months into the Covid crisis in India, employment (as a share of the total working age population) had nearly recovered to its pre-Covid levels but its composition had shifted markedly towards self-employment. Expressed as a share of total employment, formal wage employment shrank by nearly 30 per cent between December 2019 and August 2020. Informal wage employment too shrank marginally, while self-employment expanded from 48.2 per cent of total employed persons in December 2019 to 55 per cent of all employed persons in August 2020.


Covid shock heterogeneity

The paper notes that there was considerable heterogeneity in the Covid shock, with the likelihood of employment loss being higher among those initially working in the informal sector than those initially in formal jobs. Informal workers are also more vulnerable than the self-employed. Among those in informal jobs in December 2019, over 57 per cent were not in employment by April 2020. Those initially self-employed in December 2019 had a 33 per cent chance of not being in employment by April 2020, while those initially formally employed in December 2019 had a 28 per cent chance of being unemployed by April 2020.

The paper states that informal workers experienced a more severe shock than formal workers. Only 43 per cent of those who were in informal jobs in December 2019 were still employed in April 2020. The corresponding employment retention rate among those initially in the formal sector was 72 per cent. Furthermore, households headed by an informal wage worker experienced a significantly higher drop in per capita household income than those headed by formal wage workers.

The gig economy

According to the Economic Survey 2020-21, during the period of Covid-19 induced lockdown, the increasing role of the gig economy was evident with significant growth of online retail business. The lockdown period also saw employers preferring ‘Work from home’ of their employees, cutting down on staff strength and engaging freelancers or outsourcing tasks to reduce overhead costs. Drivers engaged in platforms like Uber/Ola, Swiggy, Big Basket and Pizza Hut are now showing potential as well. As a result, the gig economy has been popular amongst the workers in India. The benefit of the gig economy is that it provides flexibility in employer-employee relationship to both service seeker and service provider.

Employment opportunities

The World Bank paper adds that after the lockdown, a strikingly large proportion of those initially working in the formal sector transitioned to the informal and self-employed sectors. In addition, an unusually large proportion of those initially employed in informal wage jobs transitioned to self-employment. Overall, both among those with formal and informal wage jobs in December 2019, about 18 per cent were in self-employment by April 2020.

Self-employed fared better than informal wage workers in the early phase of the Covid-19 crisis. Self-employment may also have served as a fallback for wage workers who lost jobs: both among those with formal and informal wage jobs in December 2019, about 18 per cent were in self-employment by April 2020.

Published on April 11, 2021

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