Asia’s youth unemployment rates are running at more than double headline levels, with China, India and Indonesia facing the sharpest pressures as slowing growth, weak investment and automation weigh on job creation, Morgan Stanley said in a research note.
The investment bank’s report said regional youth unemployment averaged 16 per cent, higher than the 10.5 per cent level in the United States and well above headline unemployment rates that stand between 2 per cent and 7 per cent.
China’s youth jobless rate was estimated at 16.5 per cent, India’s at 17.6 per cent and Indonesia’s at 17.3 per cent, the highest in Asia. The report warned that worsening labour market dynamics could spill into social instability unless governments adopt reforms to stimulate investment and address skills mismatches.
“Policymakers will either have to make reforms to shift growth models or adopt redistributive measures to manage stability risks,” Morgan Stanley said.
India: Growth Not Enough
India, with a median age of just 28.4 years, faces both unemployment and underemployment, the report said. Agriculture employment has surged to a 17-year high of 253 million despite the sector contributing only 18 per cent of GDP, reflecting Covid-era underemployment.
The bank projected that at least 84 million people will join India’s workforce over the next decade, even if participation rates remain unchanged. But with India’s labour force participation rate at just 60.1 per cent, job creation is unlikely to keep up unless growth accelerates.
Morgan Stanley said India would need an average GDP growth rate of 7.4 per cent to stabilise unemployment. If participation rates rise to 63 per cent, the economy would need 9.3 per cent growth, while 12.2 per cent growth would be required to meaningfully cut underemployment.
“India needs much stronger growth in industry and exports to absorb its expanding workforce,” the report noted. Manufacturing exports, it added, have the potential to multiply job creation across sectors such as logistics and transport.
China: Labour Mismatch Worsens
China’s urban youth unemployment rate, covering those aged 16-24, has steadily risen since 2019, reaching 16.5 per cent on a 12-month trailing basis in August 2025. Entry-level wages have stagnated as employment opportunities declined, reflecting persistent deflationary pressures and rapid automation.
The number of university graduates in China rose 42 per cent from 2019 to 2024, while overall employment declined by 20 million. “The imbalance between soaring graduate supply and weakening job demand is driving unemployment higher,” Morgan Stanley said.
The bank added that China’s efforts to consolidate sectors under its “anti-involution” campaign and expand automation could intensify headwinds for young workers.
Indonesia: Weak Investment Hurts
Indonesia’s 17.3 per cent youth unemployment rate masks deeper underemployment, with 59 per cent of jobs created over the last decade in the informal sector, most paying below the minimum wage.
Morgan Stanley said the country’s investment-to-GDP ratio has slipped to 29 per cent, below pre-Covid levels of 32 per cent, as policy uncertainty dents corporate sentiment and keeps capital expenditure subdued. With the working-age population expected to grow by 12.7 million over the next decade, job creation challenges are set to worsen.
“China’s dominance in manufacturing and India’s push to expand production are limiting Indonesia’s ability to leverage exports for employment gains,” the report said.
Across Asia, policymakers face the dual challenge of cyclical pressures from weak exports and structural headwinds from technology. Morgan Stanley warned that unless investment ratios rise and labour mismatches are tackled, governments may have to fall back on redistributive policies to avert social unrest.
“Asia’s youth unemployment challenge is worsening despite headline improvements, and unless reforms are accelerated, stability risks will increase,” the bank concluded. |
