The main objective of this paper is to examine the nexus between the existing university education system and graduate unemployment, and to explore the responses of successive governments to address this issue. It also examines the viability and potential of the knowledge hub as a solution to graduate unemployment. Towards this end, it argues that the solution to graduate employment lies in implementing structural changes that are concurrent to changes that are taking place at the international level in higher education. It illustrates, with the use of relevant sources, the pressing issue of graduate un- and underemployment, and identifies the mismatch between skills and requirements as a major factor contributing to intensify the crisis. It observes that strategies such as training unemployed graduates to enable them to acquire the competencies needed for the modern work place, developing systems to link them to the world of work, re-structuring the university system such that it is more concerned with quality and relevance rather than the width of knowledge imparted, and introducing job-oriented programmes could partially address this issue. It also identifies the proposal to establish a knowledge hub in Sri Lanka as constituting a long term and sustainable strategy not only to mitigate the effects of graduate un- and underemployment, but also to facilitate a lucrative source of revenue for the country.