The Ratchet Effect on Indian Employment during COVID-19

This paper examines whether the COVID-19 pandemic produced a ratchet effect in the Indian labour
market — that is, whether shocks from the pandemic produced asymmetric adjustments that caused
employment (and earnings) for certain worker groups to decline quickly but recover slowly or not at
all, producing persistent scarring. Using a conceptual frame that combines downward nominal wage
rigidity, firm exit, skill erosion, and migrant distress, the paper synthesizes evidence from household
surveys, high-frequency private labour market data and peer-reviewed studies to test hypotheses about
permanent job loss, sectoral scarring, and differential impacts across skill and migration status. The
paper 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: some
measures (aggregate employment rates) bounced back in official measures while millions remained
permanently worse off in incomes and job quality. Policy recommendations focus on targeted
reemployment, skill remediation, social protection expansions and measures to support formalisation
and MSME survival.