Coronavirus lockdown: The economics of new alternative occupations

Many have taken to alternative occupations during the lockdown to tide over financial hardship in the short run

Many would have noticed a new trend while going through their social media and allied feeds in the past few weeks. Friends and acquaintances are sharing business and hobby ideas initiated by those in their circles during the lockdown. The reasons for this are not too hard to understand. The Covid-19 pandemic and the consequent lockdown has had far-reaching implications in terms of pay-cuts and job losses for individuals and poor performances of various small businesses. Individuals, especially in urban areas, are trying to make the best use of their talent and skills and venturing into make-shift “alternative occupations” during this time to keep revenue streams flowing. Social media platforms have facilitated these ventures by allowing them to reach out to a wider audience.

Hard times

Before understanding the micro details of these alternative occupations, looking at two macroeconomic numbers will provide the justification for this shift. Firstly, total unemployment rate: According to the Centre for Monitoring of Indian Economy, unemployment rate increased to nearly 23 per cent in April and May 2020, notably higher than the 7-8 per cent of the pre-Covid period. Though this number has dropped down to close to 10 per cent in June at the aggregate level, the unemployment rate in urban areas continues to be higher at 12 per cent. In June, close to 46 million people were unemployed of which around 16 million were in urban areas.

The second number to be taken into account is 6.4 crore registered micro, small and medium enterprises. A majority of them would have seen a noteworthy fall in revenues. This excludes the enterprises which are running their business at a much smaller scale and are unregistered.

Looking at these two numbers, we can say then that the inevitable lockdown and its consequent impact on businesses and employees have made people initiate temporary ventures to tide over these challenging times and continue till things normalise.

Types of ventures

The two most common ventures you will come across and which are an oxymoron are “fitness” and “food”. The content range for fitness videos is massive and encompasses everything from free content to paid versions with a monthly or bi-monthly subscription. Fitness sessions variants include live sessions on Instagram to online personalised training through communication apps.

In case of food, the variants include online tutorial sessions to protocol-based delivery of a specific food items, ranging from home-based baking items to daily consumed meals.

So what is the principle on which these occupations work? Profit maximisation is the foundation of any business idea and here too it is the same. These alternative occupations are either manufacturing a home-based commodity or rendering a service. Manufacturing of a commodity entails some variable costs in the form of raw materials and electricity but other costs like rent, advertisement, employee cost take a back-seat in this business model.

In terms of rendering services, like fitness videos or culinary training, it involves a one-time investment of a mobile-stand and a really good internet service provider. The marginal cost of rendering a service is close to nil and the biggest cost is in fact, ‘time’. The minimisation of a number of costs enhances the feasibility of the ventures and drives maximisation of profits.

Conditions of ‘perfect competition’

These alternative occupations, that essentially work through the online model, come close to illustrating a market structure in economics called ‘perfect competition’. This structure has broad characteristics like a large buyers and sellers, ease of entry and exit, no government intervention, complete availability of information to buyers, similar products sold and close to equal market share.

These ventures perfectly fit into the first four assumptions and partially as far as the latter two go. In case of similar products sold, services rendered may be slightly different but not conspicuously so. Also, the market share for the products is equal and very small for the large number of sellers but some other theoretical foundations of this characteristic are not observed realistically. Therefore, we can say that these alternate occupations satisfy the majority of the assumptions but not all completely.

Finally, the sustainability and policy implications of this model need to be tested. At present, when the lockdown has led to limited business activity or job losses or pay cuts, the opportunity cost of sitting idle at home is high. Utilising this idle time through alternative occupations is helping many individuals manage their households. In normal times, doing multiple remunerative things effectively would have been an onerous task as one of them would have got sidelined.

Therefore, while the shift of many to an alternative occupation during the lockdown looks like a good idea, the long term sustainability and continuation of this in a normalised economy remains a question. Despite the temporal nature of these alternative occupations, the government can tie up with social media platforms for creating a database of these activities. These platforms can be a good step to make household business activities formalised and capture value additions of these activities in the larger informal economy.

(Sushant Hede is an Associate Economist with CARE Ratings Ltd. Views are personal)

The views expressed above are the author’s own. They do not necessarily reflect the views of DH.