“Degrees Without Dividends: Youth Unemployment amid India’s Higher Education Expansion”

 “Degrees Without Dividends: Youth Unemployment amid India’s Higher Education Expansion”

 Research Case on Supply–Demand Distortions, Quality Erosion, and Employability Crisis   

Abstract

India’s unprecedented expansion of higher education institutions—ranging from elite IITs, IIMs, and central universities to thousands of private colleges—has created a paradoxical landscape where rising educational attainment coexists with some of the world’s highest youth unemployment rates. Between 2014 and 2022, India’s Gross Enrollment Ratio (GER) increased from 23.7% to 28.4%, while higher education institutions grew by 13.8%. Yet job creation in skill-matched sectors stagnated, resulting in graduate unemployment rates between 17% and 29%, far above the national average of 5–7%. This case study examines the structural mismatch between supply and demand, the decline in educational quality, skill gaps, devaluation of PhDs, and the broader economic and social implications of misaligned expansion. It concludes with evidence-based policy pathways aligned with NEP 2020 for transforming Indian higher education into a capability-driven ecosystem.

Keywords: Youth unemployment, Higher education expansion, Skill mismatch, GER, Private colleges, Employability, NEP 2020, PhD oversupply, India, Labour markets.

 

1. Introduction

India stands at a demographic turning point. With 65% of its population below 35 years, the nation possesses the world’s largest youth cohort—potentially its greatest asset. However, this demographic dividend is threatened by an alarming rise in educated unemployment. While India has celebrated expanding access to higher education, a different reality prevails in the labour market: young graduates, including those from prestigious institutions, struggle to secure meaningful employment.

The last three decades witnessed a surge in universities and colleges due to liberalization, easing of regulatory barriers, and private sector participation. Although this improved geographic and social access, it also resulted in the mass production of degrees without corresponding improvements in learning outcomes or employability. Paradoxically, despite more youth earning degrees than ever before, unemployment among graduates is higher than among the less educated.

This case study investigates why more education is not producing more jobs. Using recent government data, institutional evidence, and economic reasoning, it explores how supply-driven expansion, quality deficits, and structural mismatches have produced an oversupply of unemployable graduates. It also provides strategic solutions necessary to convert India’s youth potential into productive economic output.

 

2. Background: India’s Expansion of Higher Education

India’s higher education system has undergone massive expansion since the 1990s. Drivers include:

• Liberalization that encouraged private institutions
• Rising aspirations among middle-income families
• Government schemes such as RUSA (Rashtriya Uchchatar Shiksha Abhiyan)
• Growing demand for white-collar jobs
• The belief that more degrees equal more opportunities

Between 2014 and 2022:

• GER increased from 23.7% to 28.4%
• Higher education institutions increased by 13.8%
• Private colleges now constitute more than 78% of total institutions
• PhD awards have doubled
• Specialized institutes (fashion, law, rural management, data science) expanded rapidly

However, economic growth has not kept pace. Job creation in labour-absorptive sectors—manufacturing, agriculture, and services—has slowed. Consequently, graduates increasingly face unemployment, underemployment, or work in roles that do not require higher education.

 

3. Economic Theory Application: Oversupply Depresses Value

Basic microeconomic theory explains the crisis.

When supply exceeds demand, value decreases.

This applies to degrees too. When millions of students hold similar qualifications, the signalling value of a degree erodes.

The Indian case manifests in:

• Lower starting salaries
• High competition even for low-skill jobs
• Graduates accepting roles far below qualification levels
• Employers reporting difficulties finding “trainable talent,” not applicants

With degree inflation, even advanced degrees like M.Tech, MBA, and PhD no longer guarantee employability. This is a classic supply-demand disequilibrium.

 

4. Supply Surge and Quality Erosion

4.1 Explosion of Private Colleges

Post-1990s liberalization saw an explosion of private colleges and deemed universities. Many operate on a capacity-expansion, fee-maximization model, not on improving pedagogy, faculty strength, or research capacity.

Consequences:

• Faculty shortages; reliance on part-time or inexperienced teachers
• Limited laboratories, outdated curricula
• Poor industry collaboration
• Minimal research output
• Lack of soft-skill training

Surveys repeatedly show:

• 50% of graduates are unemployable
• Only 8.25% work in roles matching their qualifications (Economic Survey 2024–25)

4.2 Quality Pressure Even on Elite Institutes

Even reputed institutes face challenges:

• IITs reported 38% unplaced students in 2024
• IRMA (Rural Management) faces mismatch between graduates and sectoral absorption capacity
• Engineering colleges produce over 1 million engineers annually, but less than 20% meet industry standards

This shows that quantity expansion has outpaced quality improvements even at the top of the pyramid.

 

5. Demand Constraints and Skill Mismatch

5.1 Low Employment Elasticity Sectors

India’s job creation is concentrated in high-productivity sectors with low employment elasticity:

• IT-enabled services
• Advanced manufacturing
• BFSI
• High-tech and digital economy

These sectors cannot absorb the large volume of general graduates produced annually.

5.2 Automation and Digitalization

Technologies such as AI, robotics, and process automation reduce routine white-collar roles. Employers expect graduates to possess digital literacy, analytics experience, and problem-solving skills—competencies many institutions fail to provide.

5.3 Urban Women Bear the Brunt

Educated urban women experience unemployment rates as high as 21.4%, due to mobility constraints, marriage expectations, and limited opportunities aligned with their qualifications.

5.4 Misemployment and Informalisation

A significant share of graduates work in informal or low-skill jobs:

• Tele-calling
• Delivery services
• Retail sales
• Gig work
  This underutilizes their academic training.

 

6. PhD Oversupply and Devaluation

India produces thousands of PhDs every year, but academia cannot absorb them. Research infrastructure remains weak, faculty openings are limited, and funding is inconsistent.

Consequences:

• 2,000+ science PhDs remain jobless annually
• Many doctorates are awarded with poor supervision
• Low-quality research undermines global recognition
• Students returning from foreign PhDs struggle to find roles

This leads to both brain drain and brain waste.

 

7. Economic and Social Implications

The mismatch between educational expansion and economic absorption has several consequences.

7.1 Loss of Demographic Dividend

A youth population without productive employment becomes a demographic burden.

7.2 Rising Fiscal Costs

Government investments in higher education do not yield proportional labour-market returns.

7.3 Social Instability

Frustrated, unemployed youth can fuel:

• Protests
• Social unrest
• Crime
• Pressure on public-sector job demand

7.4 Declining Returns to Education

Families invest lakhs of rupees in schooling, coaching, and degrees—but returns keep diminishing.

 

8. Evidence Summary Table

Factor	Impact on Unemployment	Recent Evidence
Institution Growth	Supply exceeds demand by millions	GER +4.7%; HEIs +13.8%
Private Quality Decline	50% graduates unemployable	Profit-driven model; weak faculty
Elite Institutes Struggling	IITs 38% unplaced	2024 placement reports
PhD Devaluation	Saturated academia	2,000 science PhDs jobless
Youth Unemployment	14.6–44.5% (20–24 age)	Largest skill gap in Asia

 

9. Policy Pathways and Strategic Reorientation

Reversing the crisis requires systemic reforms focusing on capability, not certification.

9.1 NEP-Aligned Curricula

Curricula must integrate:

• Multidisciplinary learning
• Outcome-based education
• Digital skills
• Applied projects
• Communication and behavioural skills

9.2 Stronger Industry–Academia Partnerships

Measures include:

• Co-designed courses
• Apprenticeships
• Live projects
• Industry faculty
• Incubation labs

This ensures graduates meet evolving industry needs.

9.3 Rationalizing Private Colleges

Policy actions:

• Close chronically low-performing colleges
• Strengthen accreditation
• Link approvals to learning outcomes
• Ensure minimum faculty qualifications

9.4 Reforming the PhD Ecosystem

Key recommendations:

• Strict admission standards
• Better funding
• Improved supervision
• Encouraging industry-oriented research
• Aligning doctoral training with R&D and innovation ecosystems

9.5 Expand High-Quality Vocational Pathways

Creating dignity around skills-based careers reduces pressure on general degrees. Strengthening polytechnics, community colleges, and short-cycle programmes can fill labour-market needs more efficiently.

 

10. Conclusion

India’s higher education system must transition from a mass credential-dispensing mechanism to a capability-enhancing engine of productivity and innovation. While expanding access is a significant achievement, quantity has eclipsed quality, creating a labour-market mismatch that traps millions of youth in unemployment or misemployment.

To reclaim the demographic dividend, India must reset priorities:

• improve quality,
• align education with industry needs,
• reform PhD training, and
• elevate vocational pathways.

The future of India’s youth—and its economic destiny—depends on transforming education from a certificate economy into a skills and innovation ecosystem.

How Foreign Countries “Snatch” Indian Students & Increase Domestic Unemployment**

From an economic perspective, foreign universities attract Indian students through a demand–pull mechanism, exploiting the excess supply of graduates within India. Mathematically, when India produces S = 10 million graduates annually but domestic industry demands only D = 6.5 million, the excess supply (E = S – D = 3.5 million) depresses the marginal value of a degree. Foreign institutions recognize this surplus and create aggressive recruitment funnels (scholarships, relaxed entry norms, work-permit pathways). If even 10% (0.10S = 1 million) migrate annually for higher studies, India experiences a dual negative effect: (1) domestic unemployment rises, because labour supply remains unchanged while high-skilled labour demand decreases; (2) brain drain intensifies, causing the domestic wage curve (W) to shift downward due to the Mincer wage equation, where wage premiums decline as degree inflation increases. Hence, foreign universities benefit from India's oversupply (E), while India faces increased unemployment (U ↑) as per the labour market equilibrium condition U = S – D – M, where M = outbound migration of skilled youth. The greater the outbound flow (M ↑), the larger the unemployment gap becomes for those remaining, especially as returning students face limited high-quality opportunities—further worsening the domestic labour glut

 

Teaching Notes

1. Learning Objectives

Students should be able to:

• Understand how supply–demand theory applies to educational economics
• Analyse the relationship between higher education expansion and labour-market outcomes
• Evaluate structural causes of youth unemployment
• Assess the quality challenges in private higher education
• Discuss policy reforms under NEP 2020
• Propose solutions to improve employability

2. Target Audience

• MBA students
• Economics and public policy students
• Education management scholars
• Teacher training programmes
• Government and development-sector trainees

3. Case Positioning

This case is best used in courses on:

• Labour economics
• Human resource development
• Public policy
• Higher education management
• Development studies

4. Classroom Use

In a 75–90 minute session:

1. Begin with a debate on “Does India have too many colleges?”
2. Present the case evidence with charts or graphs
3. Divide students into groups to propose reforms
4. Conclude with presentations on what a “future-ready education ecosystem” should look like

5. Suggested Teaching Flow

• 10 min: Introduction to youth unemployment trends
• 20 min: Case review
• 20 min: Group analysis
• 20 min: Policy proposals
• 10 min: Takeaways

 

Discussion Questions

1. What structural forces caused youth unemployment to rise even as India expanded access to higher education?
2. How does basic economic theory explain the declining value of degrees?
3. To what extent is the private sector responsible for the employability crisis?
4. Can elite institutions remain immune to systemic skill mismatches? Why or why not?
5. Should India slow down higher education expansion? Or simply reform it?
6. How can NEP 2020 transform the employability landscape?
7. Is the oversupply of PhDs a result of poor planning or poor industry integration?
8. How can India build dignity around vocational education?
9. What role should employers play in designing curricula?
10. What would a balanced education–employment ecosystem look like by 2035?

 

References

ü  Government of India. (2024). Economic Survey 2024–25. Ministry of Finance.
AICTE. (2023). All India Technical Education Statistics. All India Council for Technical Education.
UGC. (2023). Higher Education in India: Annual Status Report. University Grants Commission.
World Bank. (2022). Skilling India: Workforce Readiness and Labour Market Mismatch.
NSSO. (2023). Periodic Labour Force Survey 2022–23. National Sample Survey Office.
FICCI–EY. (2024). Future of Jobs in India: Industry Hiring Outlook.
NITI Aayog. (2022). India’s Demographic Dividend and Skills Gap.
CRISIL. (2023). Graduate Employability and Higher Education Outcomes in India.
National Education Policy. (2020). Ministry of Education, Government of India.