Unemployment and household spending in rural and urban India: Evidence from panel data

by Gayatri Dewan

We conducted the 7th Consumer Pyramids Research Seminar on 11 February 2021 at 6.00 PM IST.

Ms. Manavi Gupta and Dr. Avinash Kishore from IFPRI presented

Unemployment and household spending in rural and urban India: Evidence from panel data

Their paper was discussed by Dr. Abhinav Narayanan from the Reserve Bank of India.

You can view a recording of the webinar here.

Event Summary

Manavi Gupta and Avinash Kishore presented results from their study on the effects of unemployment on household spending in India. They provided evidence that consumption is highly sensitive to employment shocks, with effects experienced across both rich and poor, as well as urban and rural households.

The authors employed the CPHS dataset given its sizable urban sample which enabled them to make comparative statements about urban and rural regions. Using data from 2019, the authors found urban households to be highly vulnerable to such employment shocks, with their income elasticity of consumption being much greater than that of their rural counterparts.

The authors used a simple difference-in-differences strategy and a quantile regression. They found that the top and bottom decile households faced the largest shocks following employment loss. Along with consumer durables, for which consumption expenditure declined the most, expenditure on health and education also declined.

Abhinav Anand, the discussant for the study, commended the authors on their focused research question, and novel use of CPHS data. He highlighted areas that required greater explanation and cautioned against the comparison of stock and flow variables. He recommended the use of CPHS’s panel data to eliminate time-invariant unobservables and outlined possible extensions for the study.

The authors responded to the comments and answered the audience’s remaining questions, following which the session concluded.


India has recorded high levels of unemployment and low labor force participation rates in recent years even before the onset of the COVID-19 pandemic and the lockdown. How does an episode of unemployment or loss of income affect household consumption expenditure is an important question for designing effective safety nets. We use data on household-specific episodes of job loss and decline in income, from an earlier year (March-April 2019) to estimate the household response to employment shocks. We apply diff-in-diff and quantile regressions to a high-frequency panel data from a nationally representative survey of 1,75,000 households to estimate the impact of a job loss (and change in income) on household consumption expenditure - for urban and rural households, and households across different expenditure levels. We find that loss of employment of an earning member leads to a significant immediate decline in household consumption expenditure. The decline is much larger for urban households and households in the lowest and the highest deciles of monthly per capita. Durable expenses go down the most. Expenditure on health and education also goes down significantly and there is evidence of adjustments in discretionary expenses too, especially for urban households. For households with only one earning member, borrowing does not increase after the job loss, suggesting credit constraints. Government cash transfers help rural households, as the beneficiaries show a smaller reduction in consumption expenditure after the shock. Our findings highlight the high vulnerability of urban households to economic shocks and can inform the design and targeting of income support and other safety-net programs in India and other developing countries.

About the CPHS Research Seminar Series

The CPHS Research Seminar Series features work based on the Consumer Pyramids Household Survey. It is a platform for researchers to receive critical and technical feedback from accomplished peers. It is also meant to engage with the larger research community who may gain from technical discussions. You can find all previously presented work on the Events Section of our website. You can also view a recording of every seminar so far at the CPHS Research Seminar Playlist on our YouTube channel.

The Consumer Pyramids Household Survey is India’s largest regular household survey and the world’s largest household panel survey. CPHS has collected data on over 232,000 households and 1.19 million individuals surveyed since 2014. The survey collects information on household demographics, individual identities, employment, health status, financial inclusion, individual and household incomes, consumption expenditures, ownership of assets and intentions to buy them, household amenities and consumer sentiments. Income and expenses data are a monthly time-series since January 2014.

Record-level data from all 21 Waves of CPHS is available through a subscription service. Data from the Sep-Dec 2020 Wave of CPHS was released to subscribers on January 2, 2021. Please visit our website to learn more about CPHS and how to gain access to the record-level data.

If you have written a paper using CPHS and would like to present in the Seminar Series, please write to Kaushik Krishnan at kkrishnan@cmie.com.

Use of CMIE Product implies acceptance of the usage agreement & privacy policy   ♦   FAQs   ♦  Diagnosis