Nick Clegg has pledged to deal with the "ticking time bomb" of teenagers who are not in work, school or training.
The Deputy Prime Minister announced a £126 million scheme to get 16 and 17-year-olds back into employment or education.
The initiative is part of the coalition's Youth Contract scheme, announced last November in a bid to tackle youth unemployment.
Under the new initiative, charities and businesses will be invited to bid for contracts worth up to £2,200 to take young people on.
They will receive an initial payment up front, and more money when the youngsters show progress.
At least 55,000 16 and 17-year-olds "Neets" - not in education, employment or training - who have no GCSEs at grades C or above, are expected to benefit.
Mr Clegg said: "Sitting at home with nothing to do when you're so young can knock the stuffing out of you for years.
"It is a tragedy for the young people involved - a ticking time bomb for the economy and our society as a whole.
"This problem isn't new, but in the current economic climate we urgently need to step up efforts to ensure some of our most troubled teenagers have the skills, confidence and opportunities to succeed."
This group of teenagers has been singled out because evidence suggests that unemployment early on can have a permanent effect on earning potential.
By the age of 42, someone who has been frequently unemployed as a teenager is likely to earn 12%-15% less than their peers, the Department for Education (DfE) said.
The announcement comes less than a week after the latest unemployment figures showed that the numbers of 16 to 24-year-olds not in work increased by 22,000 to 1.04 million in the three months to December.
The last Neets figures, for the third quarter of last year, showed that more than a million 16 to 24-year-olds (1,163,000) - almost one in five - were considered "Neet".
Speaking on Sky News, Mr Clegg said: "I think it is incredibly important that, at that very vital moment in someone's life, when they are in their teens, that they don't lose the ambition and the hope and the optimism about working.
"Because once that is lost, all the evidence is that it has a long-term scarring effect and makes it very difficult for youngsters to move into stable employment as adults."