For the last fifteen years, Ethiopia has made a considerable increase in educational attainment with the implementation of ‘education for all initiatives’. The number of schools, universities and colleges increased and produced many graduates ready for work. Despite such improvements the labour supply by far exceeds the labour demand and many graduated men and women are looking for but unable to find jobs and stayed unemployed. This study was aimed to investigate the intensity of unemployment and challenges to employment for the graduates of university and TVET in Merawi Town. The approach used in this research was a mixed research with a descriptive survey method, which makes the use of both qualitative and quantitative description. To this end, questionnaire and interview methods of data collections were employed. 252 unemployed graduates were selected by using simple random sampling techniques. Interviews were also conducted with 10 key informants who were selected using purposive sampling method. The data collected through survey used was analyzed by using descriptive statistics (cross-tabulation, frequency, percentages and compare means).The findings of quantitative and qualitative data reported that the main causes of graduate unemployment are lack of access to capital, lack of sufficient job opportunities, low level of family income, lack of entrepreneurship skill and problems related with quality of education. On the other hand, the study identifies dependency, drug addiction, disputed/heated, theft/robbery and prostitution as common risks that unemployed graduated youth faced in the town. To this end, the concerned body should provide sufficient job opportunities, credit access, apprenticeship training, and skills acquisition rather than general knowledge acquisition at all levels of the educational ladder especially at the secondary and tertiary levels with the view to improve young people’s employability and become pathways to work.