This year's graduates face the toughest battle in a generation for jobs, with tens of thousands facing unemployment, according to evidence documenting the impact of the economic downturn.

Ministers are so concerned that they are drawing up a rescue package to help the class of 2009 find a job or get new skills when they graduate this summer. The proposals, from the universities secretary John Denham's office, will target the 18-24 age group amid fears that a generation of young people will be scarred by recession. They include an internship scheme where students would work at a reduced wage to gain experience. Four firms - including Barclays and Microsoft - have agreed to take part in the scheme, which is being called the National Internship Scheme.

Denham told the Guardian: "This year there will be a large number of graduates - the children of the babyboomers - and we are keen to make sure that they get as good a chance as we can give them to get jobs and build good careers. We will not leave them to fend for themselves.

"The internship scheme will give them an opportunity to gain real experience of using their skills at work, and give them the best chance of showing employers what they can do."

David Blanchflower, the influential economist and member of the Bank of England's monetary policy committee who predicted the recession, today warns in the Guardian of its impact on young people, describing the latest employment figures, which show 18-24-year-olds bearing the brunt of redundancies, as "scary".

He says: "We don't want these spells of unemployment to get long. A spell of unemployment is bad when young, and the longer it is, the worse it is. We want to do everything to prevent it becoming long-term unemployment."

Evidence of the extent of the downturn in graduate recruitment uncovered by the Guardian includes:

• Major companies have narrowed their search for graduates to five elite universities as they cut recruitment numbers.

• The organisers of the annual graduate recruitment "milk round" say jobs in finance and retail are drying up. Even where companies are recruiting, vacancies will not necessarily last until summer as the economic slump worsens.

• The management consultancy KPMG, seen as a recruitment barometer, says its 600 graduate entry jobs are nearly all taken months ahead of schedule as students scramble for the top jobs.

• Manchester University careers service, the largest outside London, has seen the number of recruitment adverts taken out with its careers service tail off drastically.

• Careers service managers have been inundated with desperate students who don't know what to do when they graduate because their plans are in tatters.

• The slump in graduate jobs threatens unemployment for people with lower or no qualifications as graduates turn their sights on non-graduate vacancies.

The most recent labour market survey shows unemployment growing fastest among 18-24-year-olds. Unemployment for young adults was 597,000 in the three months to October 2008, up 55,000 from the three months to July 2008. Three million people of all ages are predicted to be out of work by the end of the year; at least 40% (1.25 million) will be under 25.

Denham's plans for internships would see students gain experience with major employers - from the public sector and charities as well as business. Graduates would receive pay deals slightly above the current student grant of £2,835 to ensure they don't suffer a cut in income. The government is considering subsidising the placements to encourage employers to take part.

Carl Gilleard, chief executive of the Association of Graduate Recruiters, said: "For the class of 2009 it's going to be more difficult than they ever banked on." He urged graduates to consider taking lower-status, lower-paid jobs - including bar work or stacking shelves - rather than abandoning the search.

Malcolm Grant, provost of University College London and current chair of the Russell Group of 20 leading universities, said: "Firms are already narrowing their search to a small number of universities: Oxford, Cambridge, the LSE, UCL and Imperial, and I think that's a shame.

"In employment terms it's rational: it's an easier recruitment process if you have fewer jobs to fill. But it's an arbitrary decision and ... it will be overlooking a rich source of talent at other universities."

At Leeds University, careers advisers are warning students to apply now as vacancies are drying up. "Graduate positions are almost full now when normally they would still have vacancies to fill right through to the summer," said Bob Gilworth, head of the university's careers service. Other careers services said they were operating at full stretch. Elspeth Farrar, head of careers at Imperial College London, said they had been inundated with inquiries from worried students who had expected to go into banking or management consultancy but now felt that wasn't an option.

A poll from the Higher Education Careers Service Unit found 62% of this year's graduates were not confident that their degree would help them get a job.

Gordon Brown will host a jobs summit on Monday to look at the impact of the recession on jobs. The Conservatives yesterday announced proposals to help young people ride out the recession, including a database of alternative apprenticeships for apprentices who lose their jobs.