Explaining the Income and Consumption Effects of COVID

by Gayatri Dewan

We conducted the 8th Consumer Pyramids Research Seminar on 25 March 2021 at 7.00 PM IST.

Professor Arpit Gupta from New York University, Stern School of Business, Professor Anup Malani, University of Chicago Law School and Bartek Woda, University of Chicago Law School presented

Explaining the Income and Consumption Effects of COVID

Their presentation was discussed by Professor Mushfiq Mobarak from the Yale School of Management.

You can view a recording of the webinar here.

Event Summary

Professor Arpit Gupta, Professor Anup Malani, and Bartek Woda presented findings from their study on the income and consumption effects of the pandemic. Their study extends the existing literature on consumption insurance by examining the extent of insurance households had during the COVID-19 pandemic.

The researchers employed the CPHS dataset with over 174000 households to look at employment, income, time-use, and consumption expenditure. The paper documents trends in income and consumption till October 2020, with results disaggregated by occupations, location, and income quartiles given the significant variation.

Households appeared to be well-insured on food which they managed by reallocating consumption away from items such as clothing and shoes. Across all occupation categories there were similar degrees of consumption decline despite differences in income decline, indicating consumption smoothing. With respect to labour, they found massive increases in unemployment and an increase in people shifting from one occupation to another. Many individuals who were out of the labour force re-entered as well.

Prof Mushfiq Mobarak, the discussant for the paper, commended CPHS for its data quality. He advised the researchers to discuss the fall in survey response rates during the pandemic, and to explore the data on migrants in the CPHS panel to incorporate them into the analysis. Lastly, he outlined several questions and policy-relevant avenues for the researchers to investigate.

Following Prof. Malani’s response to the comments, Kaushik Krishnan, Chief Economist at CMIE, discussed how the CPHS data could be used to study the areas outlined for future work, as well as the response rates during the pandemic. The session concluded with a lively, insightful discussion amongst all the members of the panel.

Abstract

The COVID-19 pandemic led to stark reductions in economic activity in India, as a result of voluntary and forced changes in behavior. We employ CMIE’s Consumer Pyramids Household Survey to examine the timing, distribution, and mechanism of the impacts from this shock on in- come and consumption. With regards to income, we document large drops in income even before lockdown policies and substantial heterogeneity in experiences. Some groups, particularly white-collar workers, saw virtually no loss; while incomes fell for nearly 90 percent for other groups such as daily laborers. Individuals compensated for loss of work in their typical jobs by seeking work in other sectors, with knock-on effects that compounded direct COVID losses in those other sectors. With regards to consumption, the data show that consumption fell even among those that did not experience income loss, suggesting precautionary savings and consumption behavior that reduced the distributive effects of COVID-19. Moreover, consumption of food and fuel fell less than consumption of durables such as clothing and appliances. Following Hamilton (2001), we estimate Engel curves and find that changes in consumption changes reflect large price shocks (rather than a retreat to subsistence) in sectors other than food and fuel. Future work will explore geographic heterogeneity in that price shock.

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