1. Introduction

When the COVID-19 pandemic reached India, the Indian government implemented strict nationwide lockdowns from April to May 2020, halting most economic activity aside from essential services. The COVID-19 pandemic has resulted in a significant increase in job losses. Kerala has been the worst affected, with the highest decline in employment during both the first and second waves of the pandemic. Specifically, between September-December 2019 and Jan-April 2020, Kerala's employment decreased from 1.04 crore to 0.81 crore, reflecting a job loss of 22.5%, the highest among all Indian states. However, Kerala's employment rate did recover in May-August 2020, unlike other low-income and high-income states and the national level, where there was no significant decline in employment.

In addition, it is worth noting that during the second wave of COVID-19 (May-Aug 2021), Kerala experienced a greater job loss compared to other states. Currently, employment in Kerala remains 8.4% below the pre-pandemic level (Sep-Dec 2019). A study by Kakarlapudi (2022) finds that the recovery of employment has been slower in Kerala, whereas other states have largely experienced a V-shaped recovery in employment by May-August 2021.

Thus, it is pertinent to understand the impact of COVID-19 on income, given that states in general and Kerala witnessed severe employment loss. Against this backdrop, this chapter analyses how COVID-19 has impacted income in the last two years and the recovery after that. Kerala’s economy can be characterized as a wage economy where labour wage approximately contributes 80% of the total income. Further, since Kerala's labour composition comprises mainly informal labour, and Kerala imposed one of the severest lockdowns in the country in the form of triple-lockdowns, the income of households would have been severely hit during these periods. On the other hand, an economy more dependent on non-labour income is expected to tide over the COVID-19 shock and coronavirus-induced recession better than a wage economy—the findings from the analysis support this argument.

Given the significant employment loss experienced by states during the COVID-19 pandemic, it is important to examine the impact of the pandemic on income. This paper aims to analyze the impact of COVID-19 on income from 2019Q2 to 2021Q2, as well as the subsequent recovery. Kerala, being a high-wage economy where labor wages account for approximately 80% of total income, is expected to experience a greater proportional impact on income due to employment losses compared to other states. For instance, in 2019-20, the average wage rate of a casual worker in Kerala was Rs 608, which is higher than the All-India average of Rs 275, according to the third wave of the Periodic Labour Force Survey (PLFS).

Additionally, due to the prevalence of informal labor in Kerala, and the implementation of strict triple lockdowns, households in the state experienced a significant reduction in income. In contrast, an economy that relies more on non-labor income is predicted to handle the COVID-19 shock and recession caused by the virus better than a wage-based economy. The results of the analysis corroborate this assertion.

2. Data and study approach

The impact of the COVID shock on income is analyzed in this study using data from the Consumer Pyramids Household Survey (CPHS) conducted by the Center for Monitoring Indian Economy (CMIE). The CPHS gathers information on self-reported monthly household income across various categories. It is India's first nationally representative, longitudinal survey that provides household and individual income data. Table A1 in Appendix presents a description of income variables. Briefly, the CPHS gathers information on the total income of households, which includes the combined income of all earning members from various sources, as well as other collective incomes that cannot be attributed to any specific member. Member income typically includes income received from wages, overtime earnings, bonus payments, pension, dividend payout on equity shares, and interest income from all sources. Meanwhile, household income covers rent, private transfers such as remittances, gifts, and donations, government transfers, business profits, asset sales, lotteries, gambling, and more.

Although there are several measures of income, the primary focus of this paper is on four major income variables, namely, total income, labor income, non-labor income, and private income. Total income is the sum of labor income, non-labor income, and private income. Labor income comprises wage income and self-production income. Non-labor income is calculated by subtracting labor income and private income from the total income. In other words, it is the household's income, excluding labor income and private income (see Table A1 in Appendix for the description of income variables).

When summarizing household income data, mean or average can be misleading due to its noisy nature. The choice between mean and median must be made, as the mean represents the center of gravity while the median represents the center of probability. Mean tends to lose its attractiveness as a measure of central tendency as the skewness in the income data increases. This analysis uses the median to represent the data better in case of extreme values, while mean figures are reported for heavily right-skewed distributions resulting in zero median income. The Stiglitz-Sen-Fitoussi Commission supports the use of median for assessing the general experience of the population (Stiglitz et al. 2009). No outliers or extreme observations are removed in this analysis. However, mean figures are reported when it is found that the distribution is heavily right-skewed, which results in zero median income.

This study focuses on 18 major states, which are categorized into high-income states (HIS) and low-income states (LIS) based on their weighted average per capita income in 2018-19. Despite being a high-income state, Kerala is not included in the HIS group, which allows for comparison with the remaining HIS states. Table A2 in the Appendix displays the distribution of observations across state groups for the entire period, indicating that there are sufficient observations to estimate population means from sample means. The data analyzed in this study spans from April 2019 to June 2021, with the pre-pandemic period of 2019-20 serving as the reference or benchmark period for analysis.

3. Analysis of income dynamics

(a) Total income

As described earlier, the household's total income captures total earnings from all sources during a month. Table 1 shows the median monthly income for each quarter from 2019Q2 to 2021Q2. Kerala’s median income was Rs 22000 in 2019Q2 compared to Rs 15280 in the HIS, Rs 13000 in the LIS, and Rs 14500 in all states.

The arrival of the pandemic in 2020Q2 (April - June) dealt a severe blow to states' median income, resulting in a sharp decline. Kerala's median income plummeted from Rs 22000 in 2019Q2 to Rs 10000 in 2020Q2, a staggering 54.5% drop as shown in Table 2. In contrast, HIS, LIS, and All-States experienced a decline of 34 to 38%. Unfortunately, Kerala suffered the most significant loss of income.

Table 1:  Monthly household median total income (Rs)
Quarter	Kerala	High Income States	Low Income States	All States
2019Q2	22000	15280	13000	14500
2019Q3	21178	15250	12800	14230
2019Q4	22000	16500	14000	15196
2020Q1	19700	15270	12200	13752
2020Q2	10000	10000	8005	9000
2020Q3	16200	14300	12000	13000
2020Q4	17900	16000	12664	14155
2021Q1	18500	16000	12026	14000
2021Q2	14500	16000	11955	13500
Source: Compiled from CMIE-CPHS.

• The median total income of Kerala dropped by 54.5% in 2020Q2 compared to 2019Q2.
• As of 2021Q2, the median total income of Kerala is 34% below the pre-covid level of 2019Q4. The corresponding figures for high-income states are 3% and about 11% for All-States.
• Labor income in 2021Q2 is 47.5% behind 2019Q4 (the pre-pandemic period), non-labor income is about 43% behind, and private income is about 20% behind.

Although Figure 1(a) suggests a V-shaped recovery for state groups until the second wave of COVID-19 hit the states, it is observed that Kerala’s revival since 2020Q2 has been tardy and slow. On the other hand, the recovery of LIS, HIS, and All-States has been faster. By 2021Q1, HIS was close to its pre-covid level median household income. Table 2 reveals that the median income of HIS and All-States increased by 4.8% and 1.8%, respectively, between 2020Q1 than 2021Q1. In contrast, Kerala recorded a drop of about 6%.

In 2021Q2, as COVID-19 made a resurgence, many states reinstated lockdowns. Like the first wave of the pandemic, Kerala was hit hard once again during the second wave. The severity of the pandemic in Kerala, accounting for over 60% of the cases in the country, resulted in a frozen state of economic activity, which is reflected in the substantial decline in median income in 2021Q2. While Kerala's median income fell from Rs 18500 in 2021Q1 to Rs 14500 in 2021Q2 (a 22% decrease), HIS and LIS were barely affected. Therefore, while Kerala's median income rose by 45% in 2021Q2 compared to 2020Q2, LIS and All States experienced an increase of approximately 50%, and the HIS witnessed a surge of 60%.

Table 2:  Percentage change in median total income (Y-o-Y)
Quarter	Kerala	High Income States	Low Income States	All States
2020Q2	-54.5	-34.6	-38.4	-37.9
2020Q3	-23.5	-6.2	-6.3	-8.6
2020Q4	-18.6	-3.0	-9.5	-6.9
2021Q1	-6.1	4.8	-1.4	1.8
2021Q2	45.0	60.0	49.3	50.0
Source: Compiled from CMIE-CPHS.

To determine whether households have recovered from the income slump, a comparison is made between the median income in 2021Q2 and the pre-pandemic period of 2019Q4. The analysis reveals that Kerala's total income in 2021Q2 remains approximately 34% lower than its pre-pandemic level. In contrast, HIS was only 3% behind, and All-States lagged by about 11%. Thus, it is clear that Kerala's recovery from the income slump is lagging behind the rest of the country.

 

 

 

 

 

 

 

 

 

Figure 1: Income during COVID-19 Years (Rs)

 

Notes:     The two red vertical bars represent the two waves of pandemic (Apr-Jun 2020 and Apr-Jun 2021).

Total represents All-States category.

(b) Labor income

Throughout the study period, labor income accounted for about 79% of Kerala's total income, which is slightly over 10% of the categories considered. In comparison, HIS, LIS, and All States had a labor income share of 67.8%, 70.8%, and 69.6%, respectively. This suggests that Kerala's economy is heavily reliant on labor-income-related jobs. The high share of labor income in Kerala's total income can be attributed to the state's labor-intensive industries, such as agriculture, fisheries, and construction, which employ a significant portion of the state's workforce.

According to Figure 1(b), the median labor income in Kerala was significantly higher in 2019Q2 at Rs 19400 compared to HIS, LIS, and All States, which had labor income between Rs 10000 to Rs 13000. However, during the first wave, Kerala experienced a steep decline of about 69% (as shown in Table 3) from Rs 19400 to Rs 6000 in 2020Q2. This decline needs to be viewed in the context of almost 2.3 million job losses reported during the first quarter of 2020. Except for HIS, LIS was equally affected by this decline. In the same period, all states experienced an average loss of 64.6%, resulting in a loss of almost 2.58 crore jobs.

Table 3: Percentage Change in Median Labor Income (Y-o-Y)
Quarter	Kerala	High Income States	Low Income States	All States
2020Q2	-69.1	-57.7	-68.0	-64.6
2020Q3	-23.9	-7.7	-10.0	-12.3
2020Q4	-18.0	-3.7	-12.8	-8.3
2021Q1	3.7	12.5	5.6	10.0
2021Q2	75.0	136.4	181.3	150.0
Source: Compiled from CMIE-CPHS.

All groups witnessed a rapid revival in labor income. In 2020Q3, the median income in Kerala increased to Rs 15000, while LIS saw an increase from Rs 3200 to Rs 9000, HIS from Rs 5500 to Rs 12000, and All-States from Rs 4000 to Rs 10000. This significant increase in median income indicates a positive trend towards economic recovery. Further, Table 3 provides additional insights into the trend of the recovery. The median labor income in HIS was 12.5% higher in 2021Q1 than in 2020Q1, while for Kerala, it was 3.7% and 10% for All-States. Although the recovery from the recession was slower for Kerala compared to HIS and All-States, there was a steady improvement in median labor income across all groups. This also indicates that the revival from the recession was more robust for HIS and All-States compared to Kerala.

Reference