Ajit Ranade: India must free its youth from a degree trap to brighten their employment prospects

The headline story from the report is that 67% of India’s unemployed youth aged 20-29 are graduates; i.e., about 11 million people. In 2004, graduates made up just 32% of unemployed youth. The share of graduates in the youth population has itself risen from 10% in 2004 to 28% in 2023. But unemployment among them has risen much faster.

The ILO-IHD India Employment Report 2024 had already flagged a graduate unemployment rate of 29%, compared to just 3% for those who cannot read or write. This trend of rising graduate youth unemployment has been known for a decade now.

The reasons lie on both the demand and supply sides of the labour market. On the latter, we have rational waiting combined with an irrational lottery. Educated youth can now afford to hold out for a job worth taking. With household incomes having risen across income groups over the past two decades, even families of modest means can sustain a waiting son or daughter longer than before. This explains the counter-intuitive pattern: the more educated you are, the higher your unemployment rate.

The wait, however, takes a specific form. A multitude of graduates are preparing for government competitive examinations. Many state governments even sponsor and subsidize preparation for public service commission entrance exams.

A meticulous study by Kunal Mangal drawing on Tamil Nadu Public Service Commission (TNPSC) data from 2013 to 2019 shows that in 2018-2019, a single TNPSC group 4 recruitment drew 13.7 million applicants, nearly four times the next largest recruiter in the state. About 80% of all unemployed individuals in Tamil Nadu were also preparing for a TNPSC exam.

When Tamil Nadu imposed a partial hiring freeze between 2001 and 2006, vacancies fell 86%, but job applications actually rose 7%. Exam preparation was actively crowding out private employment.

This pattern is seen across states.

Why this addiction to government jobs? The reasons are structural and rational. A government post offers iron-clad job security, wages well above comparable private sector roles (for instance a government-employed driver may earn four times higher), generous health and pension benefits, high social status and authority even at the lowest rungs of the bureaucracy.

For women, especially, a government posting is the one job a future in-law is likely to approve of. These repeat-attempt candidates do not miss the private job market because what it offers is a treadmill, not a career. They can always hop on that mill later, with no forgone benefits because the pay for entry-level jobs there stagnates.

On the demand side, the diagnosis is darker. Between 2012 and 2019, India’s GDP grew 6.7% annually but employment grew 0.1%. Manufacturing, the backbone of mass job creation, has seen its share of the workforce stagnate at 12-14% for over two decades, while output grew 7.5% per year.

India produced 5 million graduates annually between 2004 and 2023; only 2.8 million found any employment each year, and a mere 1.7 million entered salaried work. India largely missed the export-led, labour-intensive growth path that transformed East Asia.

Of the 83 million jobs added between 2021-22 and 2023-24, nearly half were in agriculture, with low incomes, limited productivity and no career progression. The Economic Survey 2024-25 notes that only 8.25% of graduates are employed in roles aligned with their qualifications; nearly half are in elementary or semi-skilled work. These are not jobs that offer ‘learning by doing,’ productivity or skill growth. They are dead ends with a degree requirement.

Labour laws compound the problem. Employers, reluctant to hire permanent workers they cannot easily let go, have worked around rigid job-protections through contract labour. These allow lower pay, fewer protections and easier lay-offs.

The automotive sector blazed this trail; many others followed. The result is a profound casualization of the workforce: churn without growth, employment without advancement. By contrast, in the US, a 4% unemployment rate coexists with enormous job mobility. There could be a 20% churn, with workers cycling through several jobs in a year, gathering skills and wages with each.

One policy priority should be to reduce search friction and skill mismatches. Portable apprenticeship programmes that do not require apprentices to be made permanent could ease both sides of the market simultaneously. Employer-driven rather than certificate-driven skilling would help close the gap. Better labour market information and job portals with easy search could reduce the mismatch between jobs and job seekers.

Another priority is to reduce the exceptional premium on government employment. This requires reducing perks, widening the staffing net, introducing fixed-term contracts and more outsourcing. Unemployment insurance or cash doles must be matched with job-search verification.

Graduates waste years on a government job lottery while private job creation moves at a snail’s pace and welfarism pushes its fiscal limits—we need to cut this Gordian knot.

The author is senior fellow with Pune International Centre.