Britain needs a new tax incentive to encourage firms to take on more young people and boost employment across the country, the CBI said.
The business organisation said the new Young Britain Credit would be worth £1,500 for firms taking on an unemployed person aged between 16-24 and cover the employer's first year National Insurance.
The scheme would cost £150 million in total and be affordable within the Government's debt reduction plan, the CBI added.
The number of 16 to 24-year-olds officially out of work increased over the latest quarter to just under one million, the highest total since comparable records began in 1992. Adding the inactivity rate and the jobless figures together, half of 16 to 24-year-olds are now not employed.
John Cridland, CBI director-general, said that businesses are creating jobs but often the unemployed and especially young people are not best placed to get them. He added that businesses, schools, and the Government needed to work together to make sure "young people are able to shine in the jobs market".
As part of a package of measures, the CBI is also urging the creation of 450 business ambassadors to strengthen links between schools and businesses in local areas.
It also wants assessments of an unemployed person's readiness to work and benefits to be suspended rather than cancelled when someone initially takes a job.
"Our proposals are not exhaustive, but taken together would herald a major shift in the way we prepare youngsters for the world of work, provide support for companies to create and retain jobs and ensure the benefits system makes work pay," Mr Cridland added.
A Department for Business spokesperson said: "It is vital that we do all we can to help young people without work get back into jobs with good long term career prospects and this report is a serious contribution to thinking about how to do that.
"The private sector is playing an important role, creating hundreds of thousands of jobs in the past year, and we are in turn supporting business by cutting corporation tax to make the UK the most competitive tax system in the G20 and making an unprecedented investment in apprenticeships."