Pandemic containment and inequality in a developing economy

Abstract

We integrate a canonical SIR epidemiological model into a general equilibrium framework with high-skill and low-skill workers, each choosing to work either from their work locations (onsite) or from their homes (remote). Onsite and remote labour are imperfect substitutes, but more substitutable for high-skill relative to low-skill workers. Calibrating the model to the Indian economy, we find that different containment policies, by restricting onsite labour, disproportionately affects low-skill compared to high-skill workers, thereby worsening the already existing inequality. Furthermore, the containment policies are less effective in controlling disease spread among low-skill workers as they optimally choose to work more onsite in comparison to their high-skill counterparts. Finally, we show that conditional transfers for low-skill workers designed to neutralize the increased inequality generated by lockdown, increases the effectiveness of various containment policies and succeeds in reducing the disparity in health outcomes between high-skill and low-skill workers.