The difference education makes to what the salaried earn in India

Synopsis: Earning variations can be explained by education but our problem of educated unemployment deserves deeper examination.

Introduction

Unemployment among educated youth has been high in India for some years now. Despite consistently rising unemployment, youngsters continue to invest in education because over their lifetime, they expect to earn more compared to people with low education.

Why people continue to invest in higher education?

Socio-economic factors: Educated workers may earn more because of other related traits such as superior abilities, ambition, diligence and better endowments like parental resources and status.

Returns on education: educated youth’s lifetime- earnings’ trajectory changes vis-à-vis those with lower educational levels.

Decision making: education tends to improve decision-making on crucial life options. It is also found to improve patience and focus, and enable the formation of larger social networks, resulting in better access to opportunities.

How education makes difference to the salaried in India?

For young adults: In both rural and urban areas, younger adults (aged 20-24 years) with lower levels of education start at a similar level of salary, implying not much locational premium.

For experienced: There are lack of alternative jobs in rural areas for experienced workers who have less than a college education. In urban areas, there is a marginally better increase in the salaries of middle-aged workers with lower education compared to similarly educated younger workers.

Self-employment vs salaried employment: Workers with less than primary education are better off in salaried employment, over their earning life in both rural and urban areas. And, workers with middle and secondary level of education earn more in self-employment in urban areas than in salaried employment.

Educated workers: The average earnings of young regular salaried workers in urban areas are significantly higher than those of their rural counterparts, and the earnings see a sharp upward increase from the early twenties to mid-thirties.

Educated workers in the oldest age group (55-59 years): In urban area, salary is 2.3 times that of workers with lower education in the same age bracket. They also earn 1.6 times higher than their counterparts in rural areas.

What does this analysis of rural and urban worker reveal?

Surplus of educated workers: The high level of unemployment among Indian youth with degree-level education indicates a surplus of educated workers.

Public policy relevance: if the phenomenon of vast educated unemployment is more a reflection of low employability because of poor-quality education, then the effective surplus of educated workers may be much less.

The India Skills Report 2019 suggests that only 47% of youth in India with a college education are employable. Alternatively, educated youth tend to look for higher-paying and better-quality jobs, and if offered lower pay, are often ready to wait for a longer time to find a suitable job.

Source: This post is based on the article “The difference education makes to what the salaried earn in India” published in Livemint on 21st September 2021.