At a packed east London jobs fair, Habib Mudh hid is looking for an employer to give him a break. Having spent his early 20s navigating failed job applications, courses and bit-part employment, Mudh hid is among a growing post-pandemic generation of young adults out of work.

“All that process, then nothing, and you feel like you have hope. But then nothing,” says the 24-year-old, who has come to the event for young adults at the Hackney jobcentre. “Hopefully I can get a foothold today.”

The bustling room, divided by plastic screens and with desks for each employer or training provider – which include McDonald’s and the West Ham United Foundation – highlights a quietly brewing national crisis in youth unemployment, after a rise in joblessness among 16- to 24-year-olds to the highest level in almost a decade.

Experts say years of neglect and lack of funding for employment support is now colliding with the fallout from the Covid pandemic, as well as rising mental health issues for gen Z adults coming of age in a highly pressurised, rapidly transforming world of work.

After their final years of education were disrupted, with work experience opportunities limited by lockdowns, the numbers of young people not in education, employment or training (Neet) has soared – with the total on track to breach 1 million within months.

The breakdown in the critical years between school and work has government ministers increasingly worried. Late last year, Keir Starmer and his work and pensions secretary, Liz Kendall, announced a “youth guarantee” as part of a white paper to reform the UK’s sclerotic system of job support. Ministers say it will be key to rebooting Britain’s economy, while helping to avoid lasting damage for millions of young adults.

“What happens early on in your career echoes down the years,” says Alison McGovern, the employment minister, speaking to the Observer at a parliamentary event on the hurdles facing young adults.

“If we don’t help young people who are struggling now, the long-term effects can be disastrous for their future job prospects, earnings, for their potential, for their health. Work is absolutely vital to social mobility.”

In response, the government is planning to launch “trailblazer” schemes in eight English mayoral authorities from the spring, with £45m of funding for projects in Liverpool, the West Midlands, the Tees Valley, the East Midlands, the West of England combined authority, the Cambridgeshire & Peterborough combined authority, and two in London. The plan will involve linking up teenagers with businesses – including the Premier League, the Royal Shakespeare Company and Channel 4 – to get skills training. Mayors and councils in the eight pilot areas will get new powers to join up local work, health and skills support to meet the employment needs of their local areas, backed by £125m in funding.

Officials are yet to decide on the locations in the capital, but Hackney could be a contender: the borough has gentrified in recent years, but soaring property prices and rents have compounded historically high poverty levels, landing it with the highest rate of 18- to 21-year-old universal credit claimants in London.

More than 150 young adults are at the jobs fair with Mudh hid. But despite the enthusiasm of the jobcentre’s staff, the building is hardly a welcoming place. Tucked away behind Hackney’s grand 1930s Art Deco town hall, security guards sporting body-worn cameras attend every door – reflecting above-average London crime rates, but also the levels of abuse jobcentre workers face.

The centre stands in no man’s land, “slap bang in the middle” of rival east London gangs, says Danielle Robinson, one of the jobcentre’s work coaches, who has helped some youngsters caught up in crime. “We do video calls to get round it. Some want to work – but they’re dealing with the gangs; they’ve got PTSD, they don’t want to leave the house, and they can’t come to the jobcentre as they just don’t feel safe.”

Within striking distance of the City of London, Hackney’s proximity to a global employment hotspot ought to give it an advantage versus Britain’s youth joblessness hotspots, including Blackpool, Hartlepool and Blaenau Gwent. Hackney’s work coaches have held training sessions with Apple to help prepare jobseekers for work in its UK headquarters. However, for the most part, the City’s banks, law firms, and international employers might as well be in another country.

“We’re in a capital city, and we have headquarters of lots of global businesses, but those people don’t engage [with] the jobcentre. There’s two different job markets at play,” says Chris Dodd, another of the work coaches.

His colleague, Ian Forbes, is angry with employers who often don’t even provide young job applicants with the courtesy of a rejection letter. “These people are doing exactly what they’re supposed to be doing and they’re literally being ghosted by so-called professionals,” he says. “It’s not right.”

Such behaviour is particularly galling when many firms complain to government about “skills shortages” and a lack of access to labour. The number of job vacancies in the UK has fallen sharply in the past two years, but remains above pre-pandemic levels at more than 800,000.

Many of the employers who take a chance on young jobseekers offer zero-hours contracts, the job coaches say, only for the work to dry up within weeks. Some young people end up returning to the jobcentre time and again. Alae El Asri, who helps young adults leaving care, says she recently helped one young jobseeker find zero-hours work at a warehouse in Acton, west London – about 40 minutes from Hackney by public transport.

“We even helped him get clothes and travel and he was pretty excited to get a job, but then they told him they didn’t need him any more, halfway through the first week. That [doesn’t make] you want to apply for more jobs.”

Labour is pushing to ban exploitative zero-hours contracts as part of sweeping changes to employment rights. The national minimum wage for 18- to 20-year-olds will also increase from £8.60 to £10 an hour from April – an inflation-busting 16.3% leap – in a step towards abolishing lower rates for young adults.

That, alongside a £25bn hike in employer national insurance contributions from April, has led business leaders to warn the government is in danger of undermining its ambition to get more people into work. The changes drive up the cost of hiring young adults, part-time workers and lower-paid staff in particular.

El Asri fears a zero-hours ban could discourage employers from hiring, but sees benefits if those finding work are offered more stable jobs. “It could be a good and bad thing.”

Nicola Smith, head of economics at the TUC, says there is no evidence that the key driver of employment is the minimum wage, and that many large retailers have already phased out youth pay rates. “It’s not right for an 18-, 19- or 20-year-old to be doing the same job as someone 21 or older and be paid less, just because of their age. It’s discriminatory. You can’t have people doing same job side by side and be paid different rates for it.

“Those who argue we can only grow the economy on the basis of exploitative treatment at work need to think carefully about the sorts of employment practices they’re defending.”

Mudh hid has plenty of experience of precarious employment. Two years ago, he worked for three months at Amazon’s Tilbury docks distribution hub, before being let go at short notice. “You could put your everything into that company, but then someone tells you ‘no, I’m sorry’ and they hire someone else with no experience to replace you. They’re just looking for labour.”

At the height of the pandemic, he worked on an assembly line at Ford’s Dagenham plant, employed via a recruitment agency to quality check ventilators being made by the US car giant to meet Boris Johnson’s push to make the devices. “That, too, was temporary. They had their own goal to finish; so I was able to work for, like, one month and a half.”

The legacy of Covid casts a long shadow. Research shows the economic sudden stop had the biggest impact on Britain’s youngest and oldest. Furlough prevented a deeper emergency, but young adults lost out at a critical stage in life, leading to long-term damage.

“You’re not able to go back to catch up with it. It’s very hard,” Mudh hid says. “I’ve lost that time and have more responsibilities now. We’re used to being told to do your school, your degree, and do some work in between. But I haven’t been able to finish my degree, and I have no financial support.”

McGovern says the government owes it to the pandemic generation to respond. “I don’t think we should underestimate the knocks that young people took during Covid, to self-confidence, to mental health, to qualifications,” she says. “So many young people lost out on early experiences at work that other people in previous generations couldn’t give a second thought to but that … were absolutely critical.”

All that compounded Britain’s well-documented rise in mental health issues, at a time when social media pressures, stalling economic progress and rising living costs are driving up anxiety and depression among young adults. “Often the connection is made to the pandemic, but it was rising before then,” says Barry Fletcher, the chief executive of the Youth Futures Foundation, a charity focused on improving employment outcomes for young people.

“Getting a job is a high-stakes activity. It’s by its nature a stressful and difficult thing, and if you have a mental health challenge, that exacerbates it. Then you look at opportunities for young people; living standards; the ability to buy a house. These pressures are greater than they have been for a long time, and it tends to impact young people most.”

Adam Aziz, 24, has worked at the Hackney jobcentre for three months as an employment adviser. He still lives with his parents and three brothers in the two-bed flat he grew up in. “I want to get out, but that door is closed. Financially it’s tough living in London.”

He knows the pressures better than most, having claimed universal credit at the jobcentre before starting work there. “I talk to a lot of graduates who are struggling. I know someone in a warehouse with a master’s degree. Everyone is struggling to find things.”

For the government, helping young adults will be particularly important to meet Labour’s ambition to get 80% of working-age adults into employment. It’s clear to see why it’s a priority for the chancellor, Rachel Reeves, as she attempts to drive up economic growth and keep a lid on unemployment benefits. If the UK could match the Netherlands, where only one in 20 young people are Neet, the Youth Futures Foundation estimates it would add £69bn to the British economy over the long term.

There have been various attempts in the past, including under the last Labour government through its 1990s “new deal for young people” and post-2008 financial crisis “future jobs fund”. In the coalition years, David Cameron had “youth contract” wage incentives, while Rishi Sunak’s post-lockdown “kickstart” scheme helped young adults to find jobs.

Although youth unemployment is rising sharply, it has remained below levels in continental Europe, where joblessness soared after the 2008 financial crash – leaving more than half of under-25s out of work in Greece and Spain at the height of the 2010s eurozone debt crisis.

However, Britain’s public employment service has a patchy record after years of funding cuts and a focus on policing benefits. Government data shows just 8% of universal credit claimants searching for work move into a job by the following month. Despite the Tories’ welfare cuts and claims to have focused on getting claimants “off benefits and into work”, the figures show progress has gone backwards.

In response, ministers plan to replace the jobcentre system with a new £55m national jobs and career service. “What has been happening in recent years is just not good enough,” says McGovern, who is confident, despite a looming tight Treasury spending review, that enough cash will back Labour’s reforms. “Our work coaches, who are wonderful and skilled people, spend too much time box ticking, getting in the way of them doing what they do best.

“Now is the time to say, what do our young people really need for a good start in life? The main thing we cannot do is ignore the problem.”