Workers without work: Why skills matter more than ever

Gaps in skill development and a slow shift to productive jobs place India’s demographic advantage under strain

India stands at a decisive moment in its economic journey. With one of the largest working-age populations in the world, the country is often described as enjoying a demographic dividend. Demographics alone do not create prosperity. Jobs do, and skills ultimately determine outcomes. A recent report, India’s Employment Prospects: Pathways to Jobs, by the National Council of Applied Economic Research, highlights that India’s labour-market challenge lies not in a shortage of people, but in the slow movement of workers from low-productivity activities into skilled, higher-value employment.

Over the past decade, pressure on India’s labour market has steadily intensified. Between 2017 and 2024, close to 90 million people were added to the working-age population, while employment increased by only about 60 million. This gap of roughly five million jobs each year highlights a growing imbalance between labour supply and demand. Labour force participation remains around half of the working-age population, with women participating at significantly lower rates. These numbers point to a structural weakness in India’s growth story, where output expansion has not translated into enough productive employment.

What makes the situation more concerning is the nature of jobs being created. A substantial share of recent employment growth has come from self-employment, particularly in agriculture and informal non-farm activities. For many workers, self-employment reflects economic compulsion rather than entrepreneurial choice. These activities are typically characterised by low capital intensity, limited technology adoption, and weak productivity. They provide subsistence but offer limited scope for income growth or skill accumulation. As a result, the transition from low-skilled to skilled employment has remained slow, constraining both wages and productivity.

This structural pattern has serious implications for India’s economic future. Productivity growth is the foundation of sustained expansion, rising incomes, and global competitiveness. High-value sectors such as advanced manufacturing, logistics, healthcare, renewable energy, and modern services depend on workers with technical competence, adaptability, and problem-solving ability. When employment remains concentrated in low-skilled activities, productivity growth weakens, and firms struggle to move up the value chain. India’s ambition to sustain high growth and generate quality employment cannot be realised without a decisive improvement in workforce skills.

A central constraint lies in the persistent mismatch between education, skills, and labour market demand. Only a small proportion of the workforce has received formal vocational training, and where training exists, quality and relevance vary widely. Curricula often lag industry requirements, employer engagement in training remains limited, and certification does not consistently signal job readiness. This disconnect creates a paradox: firms report shortages of skilled workers while many educated young people struggle to secure suitable employment.

Digital capability has emerged as another defining fault line. Enterprises that adopt digital tools tend to scale faster, access broader markets, and employ more workers. At the same time, digital literacy remains uneven, particularly among workers in rural and semi-urban areas. Without focused digital skilling efforts, technological change risks reinforcing existing inequalities in employment outcomes rather than broadening opportunity.

Micro, small, and medium enterprises sit at the heart of India’s employment challenge. MSMEs account for a substantial share of jobs and serve as the primary entry point for new labour market participants. However, most microenterprises remain confined to subsistence operations, employing only the owner. Constraints such as limited access to formal credit, low technology adoption, and regulatory complexity discourage expansion and hiring. Evidence from policy assessments shows that even modest improvements in access to finance or digital tools significantly increase the likelihood that these enterprises will hire additional workers. Strengthening MSMEs is, therefore, essential not only for job creation but also for improving job quality.

This is where closer collaboration between skill institutions and enterprises becomes critical. Large firms may invest in internal training systems, but MSMEs depend on external ecosystems. Apprenticeships, on-the-job training, and industry-linked curricula can bridge the gap between education and employment. Training models that combine classroom instruction with workplace exposure deliver better employment outcomes than standalone approaches.

Bridging the gap

What is required now is a shift from fragmented interventions to a coherent workforce strategy. Skill development must be anchored in labour-market demand rather than in training targets. Stronger employer participation in curriculum design, assessment, and certification can ensure that skills acquired translate into employability. At the same time, smoother pathways between academic and vocational education are essential to reduce stigma and increase participation in skills-based learning.

Universal access to basic digital skills, combined with targeted training in technology-enabled and platform-based work, can expand employment opportunities across sectors. For women and rural youth, digital access can lower entry barriers by enabling flexible and location-independent work.

Equally critical is enabling MSMEs to absorb skilled labour. Employment growth at scale will remain constrained unless these firms are supported to move beyond subsistence operations. Easier access to formal credit, simplified compliance requirements, and incentives linked to hiring and skill upgrading can encourage small enterprises to expand their workforces. When combined with apprenticeships and on-the-job training, such measures can strengthen the link between skills, productivity, and wages.

Finally, workforce policy must balance national coherence with flexibility. Labour markets vary widely across India, and skill strategies must align with local economic structures while maintaining national standards for quality and certification. Coordination between states, industry bodies, and training institutions is essential to ensure that skill investments translate into real employment outcomes.

India’s demographic window that promises growth and opportunity will narrow over time, and delays carry real economic and social costs. Population advantage alone does not guarantee prosperity. Skills are the bridge between aspiration and opportunity. Building that bridge deliberately and at scale will determine whether India converts its demographic promise into durable economic strength.

(The writer is Director, Centre of Economics, Law and Public Policy, at National Law University, Jodhpur)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.