India’s Graduate Unemployment: A Tale of Skills Aspirations and Policy Challenges

A recent report unveiled by the International Labour Organization (ILO) in tandem with the Institute for Human Development (IHD) has cast a spotlight on the unsettling state of unemployment in India. Painting a picture that could unsettle policy makers and educators alike, the findings suggest a disproportionate slice of the nation’s jobless pie consists of young graduates. Two-thirds, to be precise—a clarion call for policy reform that cannot, and should not, be ignored.

In this detailed exploration, we examine the intricacies of unemployment across the major States of India, setting aside the Union Territories for a broader analysis. In particular, we scrutinize individuals aged 15 and above using the Usual Principal and Subsidiary Status (UPSS), and draw from the rich reservoir of data provided by the Periodic Labour Force Survey (PLFS) conducted in 2022-23. It’s important to note, however, that due to the conflict in Manipur, the survey has not been completed there, thus our data do not include this state.

The study reveals that unemployment rates swing dramatically across States, with Goa topping the chart with an alarming 10% — a figure that is more than triple the national average of 3.17%. A surprising discovery is that four of the five States grappling with the highest rates are among India’s wealthier—including Kerala, Haryana, and Punjab. Conversely, the affluent western States of Maharashtra and Gujarat boast unemployment figures that fall beneath the national threshold. What’s startling is that States with lower-than-average unemployment rates often bear per capita incomes not quite at par with the national average—a paradox that begs for deeper examination.

Just as a landscape is defined as much by its valleys as its mountains, unemployment rates are intrinsically linked to rates of self-employment. A prevailing negative relationship between the two is impossible to ignore: should a State harbor a large self-employed workforce, the unemployment figures tend to dip. The informal sector, which stands as the spine for much self-employment in India, has shown a remarkable ability to onboard job-seekers. But this raises the classic chicken-or-egg dilemma: is it the scant opportunities for self-employment that hikes up unemployment rates, or does a lack of willingness to pursue self-employment amplify those statistics?

Upon examining the urban proportion of the workforce and its connection to unemployment, the relationship is positively correlated. States with urban landscapes like Goa and Kerala suffer from higher unemployment rates as compared to mostly rural States such as Uttar Pradesh, Jharkhand, and Madhya Pradesh. The reasoning for this is somewhat intuitive; urbanized States, with fewer agrarian opportunities, possess a limited capacity to absorb labor compared to the more expansive rural agricultural sector.

Yet, as with any trend, exceptions are the asterisks that demand attention. Gujarat and Maharashtra are both substantially urbanized regions with lower unemployment rates. Both States also don’t follow another observed trend—the relationship between educational attainment and unemployment. States like Kerala boast a high percentage of college-educated individuals and correspondingly high unemployment rates, whereas Gujarat and Maharashtra below the national average on both counts.

Factors driving unemployment are as diverse as they are complex. Skills mismatch could be one—the modern sector is growing and may require skills not possessed by many of India’s graduates. As further possibility relates to aspirations; graduates typically seek jobs that match their training and pay expectations, thus shunning informal sectors. As modern sectors fail to expand at a pace sufficient to absorb these graduates, unemployment naturally rises.

The role of State policy is critical here. It is not just about teaching infrastructure or managing aspirations; it’s about constructing policies that address structural transformations leading to unemployment. As India continues its journey towards becoming a developed economy, these transformations—reduced agricultural dependency, increased urbanization and education—push unemployment figures higher. It then becomes a matter of urgency for policy interventions to prioritize employment generation to mitigate these downstream effects.

As we dissect the multifaceted nature of unemployment in Indian States, let’s remember that amongst the numbers and trends are young graduates, eager to work but lacking the opportunities. Poised at the crossroads of economic development and social policy, India faces a challenge as intricate as it is urgent.

(Text and Context by Rahul Menon, Associate Professor in the Jindal School of Government and Public Policy at O.P. Jindal Global University)

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