The Ratchet Effect on Indian Employment during COVID-19

This paper examines whether the COVID-19 pandemic produced a ratchet effect in the Indian labourmarket — that is, whether shocks from the pandemic produced asymmetric adjustments that causedemployment (and earnings) for certain worker groups to decline quickly but recover slowly or not atall, producing persistent scarring. Using a conceptual frame that combines downward nominal wagerigidity, firm exit, skill erosion, and migrant distress, the paper synthesizes evidence from householdsurveys, high-frequency private labour market data and peer-reviewed studies to test hypotheses aboutpermanent job loss, sectoral scarring, and differential impacts across skill and migration status. Thepaper finds strong evidence that the initial shock (April–May 2020) led to massive, immediate job losses- especially among informal, migrant and low-skilled workers - and that recovery was uneven: somemeasures (aggregate employment rates) bounced back in official measures while millions remainedpermanently worse off in incomes and job quality. Policy recommendations focus on targetedreemployment, skill remediation, social protection expansions and measures to support formalisationand MSME survival.