Unemployment among younger workers in the labour force has been a worrying global trend from the turn of the century. According to the International Labour Organization (ILO), young people are three times as likely as adults to be unemployed. The youth unemployment rate has been rising over the past several decades in the world—from 5.6 per cent in 2000 to 6.2 per cent in 2012, and then increasing threefold, to nearly 18 per cent in 2018, and reaching around 15.1 per cent in 2020. ILO estimates the overall unemployment in the 15-25 age group to be approximately 13 per cent in 2023, though in Asia it remains higher than in the global North.
Boosting employment for the young allows a country to leverage its demographic dividend, which is the potential growth associated with having a larger proportion of the population in the working age group. This is usually achieved by including a larger share of younger individuals in the workforce. As illustrated in Figure 1, approximately 53 per cent of the Indian workforce was below 29 in 2021. This is demographically projected to decrease to 43 per cent by 2036.
Unemployed individuals are those who participate in the labour force and look for employment without obtaining a job. The size of the labour force, or the labour force participation rate (LFPR), is crucial in obtaining the unemployment rate. In this context, the precise measurement of youth unemployment is difficult because of the presence of the NEET factor (Not in Education, Employment, and Training), particularly in developing countries.
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These individuals, often low in education and skills, never look for any form of structured employment and thus do not participate in the labour force even though they can be potentially employed if they acquire the skills. The unemployment rate is the fraction of individuals looking for jobs who fail to secure employment.
Different methods of measuring unemployment
In India, different methods of sample selection used to classify individuals as employed produce wildly different estimates of the unemployment rate. For example, even within government estimates, the usual principal or subsidiary status (UPSS) of employment would deem an individual to be “employed” if they secured some employment of not less than 30 days in the previous 365 days (subsidiary status) or if they were employed for the majority of the last 365 days (principal status). The individuals identified as unemployed by the UPSS give us an estimate of the chronically unemployable. On the other hand, using the principal status gives us a far more stringent category for declaring an individual as employed and produces a different estimate of the unemployment rate.
Examining employment numbers, on one end we have the ILO, which finds a decreasing trend in employment and labour force participation among the youth. Specifically, the ILO India Employment Report shows employment in the 15-29 age group falling from 52 per cent to 37 per cent from 2000 to 2022, and labour force participation falling from 54 to 42 per cent over the same years (Figure 2). Among young women, the ILO report pegs labour force participation at a meagre 21.7 per cent in 2022 (Figure 3).
Similarly, the Centre for Monitoring Indian Economy (CMIE) utilises its own survey and pegs the unemployment rate in the 20-24 age group at about 45 per cent in 2024. On the other hand, the government of India, in its Periodic Labour Force Survey (PLFS), finds the extent of youth unemployment to be much more manageable. These figures are shown in Table 1. For 2022, the PLFS finds the unemployment rates for the 15-19, 20-24 and 25-29 age groups to be 19.2, 20.4 and 10.4 respectively among men and 23.0, 32.9 and 19.1 respectively for women.
Regardless of which set of figures one trusts, these figures, particularly for the 15-19 and 20-24 groups, a priori do not signal disaster as in this age most men and women who can afford higher education are not in the labour market. Furthermore, given the very generous definition of what it means to be employed or in the workforce in India, even relatively high levels of youth employment would belie significant disguised unemployment or underemployment, particularly for sporadic work in the informal sector.
Highlights
- The available data show that youth unemployment increases with the level of academic attainment. About one-third of younger men with advanced degrees and above 40 per cent of women with advanced degrees are without jobs.
- This downward mobility in the labour market results in reduced productivity, lower economic output, and a significant mismatch between workers’ skills and job requirements, which negatively impacts the economy.
- The AI phenomenon further challenges the employability of young individuals by affecting the total supply of available jobs. Governments such as ours with a potentially large workforce need to urgently upskill the highly educated young people.
Digging a little deeper, one can see a sinister trend underlying the youth employment numbers: youth unemployment increases with the level of academic attainment. Table 2 gives us unemployment rates in different age bands using the more stringent principal status classification. Perusing figures from the PLFS (2022-23) we find that though the unemployment rates for individuals with postgraduate qualifications in the 15-59 age group are 10.25 and 20.82 per cent for men and women, respectively, they are 33.90 and 41.49 per cent respectively for the 15-29 age group. This indicates that about one-third of younger men with advanced degrees and above 40 per cent of women with advanced degrees are without jobs.
For less qualified young jobseekers, the unemployment rates are much lower, signifying that the bottleneck for our economy is in providing high-skill jobs for the highly trained. This downward mobility in the job market has come into focus in recent years when cohorts of individuals with advanced degrees like BTech, MTech, and MBA have been seen to apply for low-skilled jobs such as sanitation staff in several states, and this severely erodes our demographic dividend.
Over time, downward mobility in labour market leads to diminishing returns on education
This downward mobility in the labour market results in reduced productivity, lower economic output, and a significant mismatch between workers’ skills and job requirements, which negatively impacts the economy. Over time, this leads to diminishing returns on education, discouraging people from pursuing higher education. As a result, academic and professional programmes face declining enrolment, potentially leading to their eventual collapse. The phenomenon of unemployability of individuals with advanced degrees has been a long-standing global problem in this century that needs to be desperately addressed.
Writing in the premier science journal Nature, Mark Taylor in 2011 posited that either we reform the process of acquiring advanced postgraduate degrees or shut down the moribund programmes, particularly ones that grant PhDs, which produce many graduates who are then unable to find employment. While such bold pragmatic pronouncements may have some merit, it is also true that the instrumentalisation of education to merely provide meal tickets ultimately leads to undermining its purpose in society. This could lead to the collapse of programmes in arts, humanities, and the basic sciences which do not train individuals to necessarily create a product or offer a service.
An engineer with an advanced robot welding machine. The AI disruption is poised to displace workers across a wide spectrum of jobs. | Photo Credit: Getty Images
A serious corollary to the lack of jobs for the qualified is the brain drain that has been endemic to the Indian economy for the last 50 years, with many trained and skilled individuals who cannot secure suitable employment migrating to other countries, most often to get advanced degrees and not return, further eroding human capital in our economy. In a 2023 study by Prithwiraj Chaudhury and co-authors in the Journal of Development Economics, out of the 1,000 highest scorers in the 2010 Joint Entrance Examination of the Indian Institutes of Technology, around 36 per cent migrated abroad, and of the top 100 scorers, 62 per cent left the country. This trend of brain drain continues unabated, and in 2022, the number of Indian students who left the country for higher education reached a six-year high of 7,70,000.
Reasons for brain drain
What are the main reasons for well-educated young people in India not obtaining jobs today? For one, it is true that curricula in higher education programmes, at least in India, are largely outdated and rely on the memorisation of facts and figures, which may have passed muster 50 years ago but today produce rote learners who are unable to think outside the box or display the innovation required to function in a fast-paced globalised world. A key factor behind the lack of intellectual dynamism among our highly educated youth may be the insufficient investment in infrastructure and expertise in affordable higher education institutions, both public and private. These institutions often produce graduates with inadequate skills, making them less competitive in the job market and harder to employ. Elite public universities often have crumbling facilities, faculty posts that go unfilled for years and syllabi that are not appropriately updated.
This is not surprising given that government spending on education has not exceeded 5 per cent of GDP over the last 20 years, though the enrolment in higher education has increased from 3.42 crore to 4.33 crore just between 2014 and 2022. Of this, the higher education budget is meagre at best and gets less than 1 per cent of the GDP. There is a small set of elite private universities that have emerged in the last 20 years, but most of these are out of the reach of the Indian middle class. In the New Education Policy of 2020, the government has suggested that the education budget be raised to 6 per cent of the GDP. This is a welcome pronouncement and must be implemented immediately.
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Secondly, the speed of diffusion of ideas and knowledge creation in the third decade of the 21st century is owed in no small part to automation, expert systems and artificial intelligence (AI) that have slowly but inexorably seeped into every institution in the world. This phenomenon further challenges the employability of young individuals by affecting the total supply of available jobs. According to Nobel laureates Esther Duflo and Abhijit Banerjee, while this particular wave of automation is in a nascent state, earlier disruptors like the steam engine, electricity, computer chips, and computer-based office innovations all lowered the need for human workers. According to David Autor, in the first IT revolution starting from the 1990s, jobs which involved routine repetitive tasks were made redundant. This meant that typists, assembly line workers, and office administrators such as clerks and peons became structurally unemployed.
This time around, computer systems, machines, and algorithms are self-learning and self-reinforcing. The algorithms that power these machines are superlative at non-repetitive analytical tasks and often perform faster and with lower bias than humans in solving complex multi-attribute problems in judgment and decision-making. The AI disruption is thus poised to displace individuals across a wide spectrum of jobs. Accountants, consultants, financial and media planners, paralegals, and journalists are already competing with some form of AI. In this “second machine age”, a phrase coined by Massachusetts Institute of Technology professors Erik Brynjolfsson and Andrew McGee, individuals with sophisticated skill sets and degrees from top institutions of higher education will become increasingly unemployable unless they acquire the skills to service this robot and algorithm-laden economy and have to look for lower paid/lower skill jobs, leading to a significant increase in inequality.
Yanis Varoufakis, the former Finance Minister of Greece and renowned economist, warns us of this new post-capitalist era of techno-feudalism, wherein a few corporations or cloud “lords” who exploit the power of digitisation and AI and their small skeleton workforces will control most of the world economy. Governments such as ours with a potentially large workforce need to urgently upskill the highly educated young people who exit our system of higher education so that they remain economically viable for the next decade in the global marketplace.
Currently in India, there are no concrete policies in place regarding reskilling or compensation of individuals displaced by AI usage. On the other hand, in a recent survey on AI deployment by IBM in several countries, 59 per cent of Indian companies reported using AI in their business operations (Figure 5). This is the highest among all countries surveyed and is a clarion call for our government to institute policies to safeguard our workers.
Sujoy Chakravarty is Professor of Economics, Centre for Economic Studies and Planning, at School of Social Sciences, Jawaharlal Nehru University.
