Maurizio Bussolo
World Bank
Siddharth Sharma
World Bank
Ananya Kotia
London School of Economics
Working Paper
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This paper estimates the differential impact of the COVID-19 crisis on the formal and informal sectors in India using data from the CPDX household panel dataset and employing an event study approach. Within the same industry and district, initially informal wage workers were significantly more vulnerable to the loss of employment than initially formal workers during the early phase of COVID-19 (April 2020). Furthermore, in the early phase of COVID-19, income declined significantly more for households whose head worked as an informal wage worker than for households with a formally employed head. However, the post-COVID employment and income differentials between informal and formal workers narrowed after April 2020. By July 2020, the decline in income (from the pre-COVID baseline of February 2020) was not significantly different across households with informally and formally employed heads. These patterns suggest that relative to formal workers, informal workers were affected more severely by the early COVID-19 shock but also recovered faster from it.

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