5. Education and Links with Employment

The relationship between education and employment in India has become increasingly complex. While educational attainment has improved substantially over the past two decades, the labour market has not generated sufficient jobs that match the skills and aspirations of the educated workforce. This chapter examines the education profile of India's workforce, the returns to education, the links between education and employment outcomes, and the growing mismatch between education and available jobs.

Key concerns include the paradox of rising educated unemployment, the poor quality of education and training, the low relevance of vocational training, and the concentration of educated youth in a narrow range of occupations. The chapter draws on data from the Periodic Labour Force Surveys and the ILO's School-to-Work Transition Survey (2020) to analyse these challenges.

The educational profile of India's population has improved significantly. The literacy rate increased from 64.8% in 2001 to 77.7% in 2021. The share of the workforce with secondary education and above rose from 18.3% in 2000 to 22.4% in 2022. However, this improvement has been uneven across gender, regions, and social groups.

Despite these gains, the quality of education remains a major concern. Learning outcomes, as measured by the ASER surveys, show that a significant proportion of students lack basic reading and arithmetic skills. The National Achievement Survey (NAS) also reveals poor proficiency in foundational literacy and numeracy. This quality deficit undermines the potential benefits of increased educational attainment for employment outcomes.

The skills landscape in India is characterized by:

• Low formal training: Only a small fraction of the workforce has received formal vocational training. The majority of skill acquisition happens through informal, on-the-job learning.
• Gender disparity: Women have lower access to education and training, particularly in technical and vocational fields. The female literacy rate (70.3%) remains below the male rate (84.7%).
• Regional variation: Southern and western states have higher educational attainment than eastern and northern states, reflecting broader patterns of regional development.
• Growing demand for new skills: Technological change, particularly in the services sector, has increased demand for high- and medium-skilled workers, especially in ICT-related services.

The returns to education in India are significant but vary by level of education, gender, and sector. Higher levels of education generally lead to better employment outcomes and higher earnings, but the returns are not uniform.

Key findings on returns to education:

• Earnings premium: Workers with higher education earn substantially more than those with lower education. The wage premium for graduates is significant compared to those with only primary education.
• Gender differences: The returns to education for women are lower than for men, reflecting occupational segregation and gender discrimination in the labour market. Educated women are more likely to be in lower-paying occupations or out of the labour force.
• Sectoral variation: Returns to education are higher in the formal sector, particularly in services and manufacturing, than in the informal sector and agriculture.
• Declining marginal returns: At higher levels of education, the marginal returns may decline, particularly when the supply of educated workers exceeds the demand for skilled jobs.
• Unemployment among educated: Paradoxically, unemployment rates are higher among the more educated, particularly youth. This reflects the mismatch between education and available jobs, as well as the higher reservation wages of educated workers.

The share of educated youth (secondary and above) among the unemployed increased from 35.2% in 2000 to 65.7% in 2022. This rising trend of educated unemployment is a major concern, indicating that the education system is not adequately preparing students for the labour market.

The link between education, training, and employment in India is weak. The vocational training system is fragmented, underfunded, and poorly aligned with industry needs. The majority of the workforce acquires skills through informal apprenticeships and on-the-job learning rather than formal training programs.

Key issues in the education-employment linkage:

• Vocational training gap: Only 2.4% of the workforce aged 15–29 had received formal vocational training as of 2022. The National Policy on Skill Development and Entrepreneurship 2015 aimed to skill 400 million people by 2022, but progress fell far short of the target.
• Quality of training: Many training programs are outdated and do not reflect current industry requirements. The curriculum is often not aligned with emerging technologies and market demands.
• Apprenticeship system: The apprenticeship system remains underutilized. The number of apprentices is a small fraction of the potential, and most apprenticeships are in the manufacturing sector with limited coverage in services.
• Informal training: Hereditary and on-the-job training remain the primary modes of skill acquisition, particularly in traditional occupations and small-scale enterprises.
• Digital skills: The rapid digitalization of the economy has created demand for new skills, but the education and training system has been slow to respond. The gig economy, while providing new opportunities, also requires new forms of digital literacy and entrepreneurship.

Education influences the type of employment that workers obtain. Higher education is associated with regular salaried employment, while lower education is linked to self-employment and casual work. However, even among the educated, a significant share is in informal and precarious employment.

Key patterns:

• Regular salaried employment: The probability of being in regular salaried employment increases with education. However, among the regular salaried, a large share lacks job security, written contracts, and social security benefits.
• Casual and informal work: Workers with lower education are more likely to be in casual wage work or self-employment, often in low-productivity activities. The informal sector absorbs a large share of workers with limited education.
• Female employment patterns: Educated women are more likely to be in professional and clerical occupations, but also face higher unemployment and underemployment. Many educated women withdraw from the labour force due to family responsibilities and lack of suitable employment opportunities.
• Youth employment: The type of employment for youth is closely linked to their education. Youth with higher education aspire to formal sector jobs, but many end up in informal employment or remain unemployed while searching for suitable work.

The ILO School-to-Work Transition Survey (2020) provides insights into the job search experiences of young people in India. The survey reveals the challenges faced by youth in transitioning from education to employment and the factors that influence their labour market outcomes.

Key findings from the survey:

• Job search duration: Young people often face long job search durations. The average duration of unemployment for youth is significant, with many remaining unemployed for more than a year.
• Job search methods: Personal networks and informal channels are the primary methods of job search. Formal employment exchanges and online portals are less effective, particularly for rural youth and those with lower education.
• Job quality aspirations: Youth aspire to formal sector jobs with good wages and job security, but many settle for informal employment due to limited opportunities. The gap between aspirations and reality contributes to job dissatisfaction and turnover.
• Gender differences: Young women face additional barriers in job search, including limited mobility, family restrictions, and gender discrimination. The survey finds that young women are more likely to rely on family connections and less likely to use independent job search methods.
• Skills and employability: Youth with vocational training and work experience have better job search outcomes. However, the majority of youth lack relevant training and work experience, making their transition to employment more difficult.

The education mismatch — where workers' skills and qualifications do not match their job requirements — is a growing concern in India. Highly educated youth are particularly affected, as they often find themselves in jobs that do not utilize their qualifications or skills.

Forms of education mismatch:

• Over-education: Workers with higher education than required for their jobs. This is common among graduates who take up jobs that only require secondary education. Over-education is associated with lower job satisfaction and reduced productivity.
• Under-education: Workers with lower education than required for their jobs. This is less common but can be found in rapidly changing sectors where job requirements have increased faster than educational attainment.
• Skill mismatch: Workers' skills do not match job requirements, even when education levels are appropriate. This can be due to the poor quality of education, outdated curricula, or rapid technological change that makes existing skills obsolete.
• Field-of-study mismatch: Workers are employed in fields unrelated to their area of study. This is common among graduates in general fields like arts and humanities, who may end up in unrelated occupations due to limited job opportunities in their field.

The consequences of education mismatch include:

• Lower earnings for over-educated workers compared to those in matched jobs
• Reduced job satisfaction and higher turnover
• Wasted investment in education and training
• Social frustration and underutilization of human capital

The education-employment linkage in India is characterized by a paradox: while educational attainment has improved, the labour market has not generated sufficient quality jobs for the educated workforce. The rising trend of educated unemployment, the poor quality of education and training, and the growing skills mismatch are major concerns.

Key takeaways:

• Educational expansion without quality improvement and labour market alignment does not guarantee better employment outcomes.
• The vocational training system needs major reform to be more relevant, accessible, and aligned with industry needs.
• Addressing the skills mismatch requires coordination between education institutions, employers, and government agencies.
• Gender disparities in education and employment need targeted interventions to improve women's labour market participation and outcomes.
• The education system must adapt to technological change and the emerging needs of the digital economy, including the gig economy and platform work.