Karnataka (India) recorded impressive growth in the 1990s, with state income growing at 8% per annum, driven largely by expansion of the industrial and service sectors. However, this impressive performance has not reduced rural poverty levels or regional disparities to a great extent. This report addresses three major concerns of policy makers in Karnataka on which there is little prior research: (1) Is the expansion in student places at the secondary and higher secondary levels justified on economic grounds?; (2) Do secondary school leavers from disadvantaged or poor backgrounds perform worse in the labor market and in continuing into higher education than students from more advantaged backgrounds?; and (3) Is vocational training a desirable alternative to general higher secondary education in terms of improving labor market performance? The report uses state-specific data on employment, unemployment, and earnings from the National Sample Survey 1993/94 and from a tracer study of secondary, higher secondary, and vocational graduates conducted in February-March 2001. A small sample of employers was also interviewed. Students (n=2000+) from institutions (n=110) in four districts, selected through multi-stage stratified sampling were traced and interviewed to find out about patterns of transition to the labor market or higher education, labor market performance, and the usefulness of their training. Following the "Executive Summary", the report contains four chapters: (1) "Introduction"; (2) "Labor Market Performance of Secondary Education Graduates"; (3)"Factors Influencing Graduation, Continuation into Further Education and Employment"; and (4) "Labor Market Performance of Vocational Training Graduates." (Contains 21 tables, 2 boxes, 3 charts, and 13 references.) (BT)