How Have Formal Firms Recovered from the Pandemic ? Insights from Survey and TaxAdministrative Data in Zambia

This paper examines how formal firms have been impacted by and recovered from the pandemic, bydrawing on two distinct but complementary data sources. This is the first attempt to use both survey and taxadministrative data to measure the initial decline and subsequent recovery of firm sales and employment in a low-or lower-middle-income country. The findings of three rounds of follow-up surveys to a standard World Bank EnterpriseSurvey completed immediately prior to the pandemic are compared to information contained in the universe ofvalue-added tax and personal income tax returns filled by firms during 2020 and the first half of 2021 in Zambia.Despite substantial differences in terms of the breadth and depth of these data sources, they show a very similarpattern. The sales of formal firms recovered from the pandemic far more strongly than their employment levels. ByJuly 2021, both the survey and tax administrative data show that most firms experienced a complete recovery in sales,while levels of employment worsened over the course of the pandemic for many firms. Two key insights emerge from thisanalysis. First, formal firms appear to have adjusted their operations in a way that reduced their need for as much labor to achieve the same (or higher) level of sales.Second, if formal firms’ reduced reliance on labor persists, lower levels of formal employment in low- and middle-incomecountries may be a concerning consequence of the COVID-19 pandemic that lingers for years to come.