Today, China’s official unemployment rate is about 4.3 percent, but it is a gross underestimate because of underemployment among both rural and urban Chinese — they may have a job but their skills are underutilized and they are underpaid.

What explains this situation? No doubt, the global economic crisis has contributed to job loss, but China is considered one of the first economies to recover from the recession.

Another explanation widely cited in the media is the government-directed increase in university enrollment since the late 1990s. But even with that expansion, less than 8 percent of the Chinese population are college-educated compared with more than one in four in the U.S. That suggests there is much room for growth in higher education, especially if the country is to live up to the expectation of “China’s century.”

Instead, three explanations may account for the relatively high unemployment among college graduates. First, geography matters. Young people from smaller places and rural areas, upon obtaining a university degree, are likely eager to go to or stay in big cities. This effect is crowding the labor market in cities like Beijing and Shanghai and hurting the economy of small cities and towns.

Second, globalization matters. By rough estimates, one quarter of the Chinese who have studied overseas have returned. Nicknamed “sea turtles” (haigui), these returnees are highly competitive and can easily push the domestic college graduates down the job hierarchy.

Finally, China’s economy continues to be dominated by the industrial sector, which accounts for about 49 percent of the gross domestic product. While services — the most likely sector for college graduates — account for about 40 percent of the G.D.P., high-skilled, professional jobs are still relatively few compared with low-end service jobs like those in sales.

Creating high-end jobs and increasing the incentives for young people to live in smaller cities are obvious ways to reduce their unemployment. But this is easier said than done. The Chinese economy is no longer centrally planned, and as we have observed on this side of the Pacific, relying on the market alone — even with stimulus packages — has not yet put enough people back to work.

You cannot tell a Chinese college graduate, “you’ve invested years and money in a college education, but your job prospects are in your home village.” So there is now a geographic mismatch between locations of jobs and locations of college graduates.

Secondly, there is a skills mismatch. In my conversations with Chinese managers and entrepreneurs, they constantly complain about a shortage of people with the right set of skills, capabilities and inclinations. China is so short of the right human capital, and books with titles like, “War for Talent,” are best sellers in China.

The Chinese educational system is terrible at producing workers with innovative skills for Chinese economy. It produces people who memorize existing facts rather than discovering new facts; who fish for existing solutions rather than coming up with new ones; who execute orders rather than inventing new ways of doing things. In other words they do not solve problems for their employers.

You multiply this skills mismatch by a sixfold increase in the college enrollments between 1997 and 2008, you get a sense of scale of the problem. Although Chinese universities are not without pockets of excellence, they are churning out people with high expectations and low skills. That combination cannot be good for any country, let alone a country with a low capita income.

In the past, it wasn’t too difficult for graduates in the humanities to find highly paid jobs with foreign companies or Chinese financial institutions in Beijing or Shanghai. Many graduates are now considering working in smaller and less developed cities. Others are enrolling in graduate programs that delay the job search. Still others are considering jobs outside of their majors.

One of my graduate students has found a job as a Chinese teacher at a highly regarded secondary school and she says “with this job it will be impossible for me to make a great fortune but I’m quite sure I will be very happy.”

Increasing numbers of graduates are competing to take the civil service exams. Whatever their private misgivings about the government, a government job is increasingly seen as the best option in economically uncertain times.

In response to the job crunch, the government is cutting back on university enrollment growth to 5 percent annually. But the demand for university spots won’t stop growing and the government will find it increasingly difficult to maintain a “harmonious society.”’

The only long-term solution, in my view, is to change parental expectations. Not everyone is destined to be a successful professional or government official, and students will need to be filtered at an earlier age to vocational training, similar to the educational system in Germany.

But parents need to accept that working with hands can be just as socially valuable as working with the mind. A bit of Maoism, in that sense, might need to be reintroduced to China.

But are sufficient jobs available? The economic crisis certainly reduced the job market for recent graduates, but evidence suggests that the Chinese economy has bounced back.

The broader trends definitely suggest that the economy will be able to absorb more graduates. First, the economic returns to college education (the percentage difference in wages for college graduates compared with high school graduates) in urban areas have increased tremendously over time, from less than 12 percent in 1988 to nearly 40 percent by the early 2000s, with no signs of declining, and such economic returns are highest for recent graduates. This suggests that increases in the demand for college-educated workers continues to outpace the increase in supply.

Overall, the percentage of the national urban labor force that is college-educated remains less than 10 percent, while global integration and rapid technological change increasingly place a premium on high-skill workers. China’s college graduates have reason to be optimistic about the future.

Estimates suggest that between 2002 and 2008 urban employment grew by nearly 4 percent a year (or 15 million new urban jobs annually), with annual employment growth of migrants outpacing that of urban residents (5.1 percent versus 3.3 percent). Indeed, on the eve of the recent financial crisis, labor markets in many parts of China were fairly tight.

At the end of 2008, total urban employment began to decline and continued to fall through the first half of 2009, but there are indications that urban job growth is now recovering.

The problem facing new college graduates is neither the economy nor the migrants.

Instead, it is the result of a rapid of expansion in higher education and a serious mismatch in the labor market. In 2003, surveys were already pointing to these difficulties. Notably, women, graduates from China’s lower-tier colleges and universities, and those with degrees in education, literature and science were faring more poorly. There were also important regional differences.

Nonetheless, overall there will still be high economic returns for a college degree, and China’s emerging middle class will continue to demand expanded educational opportunities for their children.

China’s educational system needs to do a better job of providing the skills that are valued by the market. On the demand side, other reforms, including those in the financial system, are required to relax constraints facing China’s private sector, which creates jobs. Neither of these changes, however, will happen quickly.