'I have concerns that something horrible might come," said economist David Blanchflower during the financial crisis of 2008. And now that something has come to pass. The number of jobless young people aged 16 to 24 is almost nudging one million, according to government figures. It is the highest level of youth unemployment on record.

Rhys Harrison, a 24-year-old chef from Pontypridd, has been unemployed since 2009. "I've applied for about 200-220 jobs in Pontypridd, Cardiff, Merthyr [Tydfil], and the valleys in general," says Harrison. "But there's nothing happening." Small wonder: in Merthyr Tydfil there have been as many as 32 jobseekers per vacancy. To protest about the situation, Harrison is re-enacting the 1936 Jarrow march with hundreds of other jobless young people. After a month of marching, they arrive at London's Embankment at midday on Saturday, and will deliver a petition to Downing Street.

"Something has gone very, very wrong for a whole generation," says Tanya de Grunwald, founder of GraduateFog.com, a website that addresses graduate problems. Around one in five young people can't find work, so they often can't leave home. Many remain financially dependent on their parents, and are trapped in a confidence-sapping cycle of application after application, rejection after rejection. Those who do have jobs are usually poorly paid, if at all, and have to work irregular or part-time hours. It's a situation that favours the privileged: those with supportive parents are better placed to take up exploitative, unpaid internships.Patrick

"These internships are a massive issue," says De Grunwald, who also spearheads the Pay Your Interns campaign, and reckons there may be more than 130,000 wageless interns out there. "They're propping up businesses [for free], and they're no longer leading to paid jobs: they're replacing paid jobs." As a result, she says, many graduates are now questioning the point of spending thousands of pounds on a degree that does not give them much advantage in the job market.

And if it's bad for graduates, it's worse for those who left school at 16. "The economy has changed in the past 20-plus years," says Nigel Meager, director of the Institute for Employment Studies. "There are fewer jobs for people with no qualifications. Jobs that used to go to people with school-leaving qualifications are now going to graduates."

All this has a scarring effect on the long-term unemployed, both professionally and psychologically. "A year of unemployment in early adulthood has a much bigger effect on your career prospects and earnings than a year out of work at 30 or 40," says Meager. "If I have been previously employed, I know that my skills have previously been valued. If I've never been employed, I have no psychological material to draw upon." This also causes problems in the short-term, says De Grunwald. "If an interviewer asks you: 'What have you been doing for the last few months?' and you say: 'I've been applying for jobs', that doesn't look great."

What can be done? The coalition government has scrapped the two schemes that Blanchflower feels were starting to solve the crisis: the Future Jobs Fund, which would have guaranteed more than 100,000 jobless youngsters real, if temporary, employment; and the education maintenance allowance (EMA), which subsidised poorer students through sixth form. In their place, the government will introduce "work academies" that promise as few as 50,000 participants work experience, training – and a job interview, rather than a job.

Blanchflower thinks it's a regressive step. "Their work programme is all garbage. They have nothing," he says, arguing that the government should instead be providing employers with greater financial incentives to take on young people. "I advocate a two-year holiday on national insurance premiums for anyone under the age of 25, both from the employer and the employee. You could even offer tax credits to firms that hire any young person." He also suggests increasing university places by 100,000, in the wake of this year's record number of applications. "It's much better to have them off the street and in education. And this would pull 100,000 off the street." We've got to do something drastic, he says. "Because young people riot when they're unemployed."