Youth Unemployment and Skill Mismatch in India: Evidence Based on Secondary Labour Market Indicators

Despite continuous improvement in literacy rates in India, the rate of youth unemployment has continued to be high. This is worrying, particularly in terms of how well it is being addressed through education and training and the nature of this skill mismatch. With secondary labour market indicators for 2018–2025, this study focuses on the connections between unemployment, literacy and youth employability, both individually and in combination. The analysis is based on recently released data on the labour market in India. It conducts ability and employability evaluations and follows a two-stage empirical process. Given the availability of only eight annual observations, the findings are interpreted as associations rather than causal effects. The study is an empirical approach and was conducted in two phases. First, Ordinary Least Squares regression is used to investigate the link between selected unemployment indicators and literacy indicators at the individual and at the structure level. Analyse the relationships among variables and their impact on youth employability, focusing on skill mismatch and multicollinearity patterns. Second, composite measures of unemployment and literacy are developed to look at the relationship between both. The relationship between employability and the association is examined within a parsimonious regression framework. This method can be used to allow the study to preserve the usefulness of the disaggregated indicators and to decrease dimensionality in the principal specification. The findings of this study indicate that unemployment and literacy indicators, when combined, account for a significant proportion of the variation in the results. There was some variation in youth employment levels, but it was difficult to separate out individual relationships due to multicollinearity. In the composite-index model, the unemployment index is negative. The literacy rate is associated with youth employability, and it is statistically significant at the 5% level, whereas the rate of participation in ethnic minority schools is not. The association of the index and Y is negative and statistically significant at 10%. These results relationship between the two. They do not imply a causal relationship between the two, but they are consistent with the possibility of a skill mismatch. The overall results indicated that there is a need for improvement in educational attainment, alongside a greater skills-labour market fit, if these outcomes are to change. JEL Codes: I21, J13, J24