Almost half a million young people have been unable to move from learning into employment after being "shut out" from finding their first job amid changes to the type of skills firms require, according to new research.
The Work Foundation said there had been a "major" increase in the number of 16 to 24-year-olds who were not switching from education to the world of work.
The report, covering England, said young people were finding it harder to get a foothold in the jobs market because of long-term changes to the type of skills they were expected to have as the UK economy moves from being reliant on production, to services.
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So-called soft skills such as communication are increasingly important, but the education and training system has not adapted to reflect the changes, said the report.
Around 450,000 youngsters in England have no experience of sustained paid employment beyond casual and holiday work, said the research group.
Dr Paul Sissons, the report's author, said: "The labour market has changed considerably over the past few decades. First jobs are now less likely to be in manufacturing and more likely to be in the service sector where skills such as communication, team working and customer service are important.
"For young people without the soft skills needed to access work in these growing sectors, finding employment has become increasingly difficult.
"A period of worklessness while young can detrimentally impact peoples' careers over the longer term. More needs to be done to support young people at this crucial point of transition, and local service provision must be geared up to address this aim.
"This requires consistent support and effective co-ordination of services across local government, schools, employers and the third sector to prevent more young people from falling through the gaps in public provision."
A study by the Institute of Leadership & Management (ILM) published on Tuesday claimed even once they have a job, graduates are struggling to move from higher education to the workplace.
The ILM report revealed many managers felt graduates are too focused on their own objectives, lacking in core business skills and unable to work effectively in a team.