Pandemic containment and inequality in a developing economy

Abstract

Using individual-level panel data from India, we show that income inequality between high-skilled and low-skilled workers increased following COVID-19 lockdown. Integrating a susceptible, infected, recovered, dead epidemiological model into a general equilibrium framework with high-skilled and low-skilled workers, working either from their offices (onsite) or from their homes (remote), we can explain between 24 and 59 percent of the observed increase in inequality. We also find that disease incidence is higher among low-skilled workers as they choose to work more onsite compared to their high-skilled counterparts. Direct transfers for low-skilled workers reverses this increase in inequality and improves the effectiveness of containment policies.