Charities and businesses in the West Midlands have been offered £15 million to get young people into work, education or training.
Nick Clegg, the Deputy Prime Minister, announced plans to pay organisations up to £2,200 for every young person they help.
The aim is to help more than youngsters aged 16 and 17 who are currently not in education, employment or training, known as NEETs.
In particular, the scheme will focus on young people with no GCSEs at grade C or higher, who are believed to be at the greatest risk of dropping out of the system.
The West Midlands has been allocated £14.5 million from a national fund of £126 million, more than any other region of the country - because it has more than 6,000 eligible youngsters, a higher figure than anywhere else.
In an attempt to link payment to results, organisations will receive an initial payment for taking young people on, followed by subsequent payments when they show progress, including sticking with training programmes, undertaking apprenticeships, or holding down jobs.
The Government says it is focusing on 16- and 17-year-olds because of evidence that unemployment in early life can leave a permanent scar on earning potential, with the effects on their careers still evident decades later. By the age of 42, someone who had frequent periods of unemployment in their teens is likely to earn 12-15 per cent less than their peers.
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.
“Many of them will have complex problems: truancy, teenage pregnancy, a lack of GCSEs and health problems.
“So helping them onto their feet will not be without challenges and Government cannot do this alone. But we all have a duty to reach out to the young people who can be hardest to reach.
"That’s why today I am calling on charities and other organisations at the coal face to work with Government to help tens and thousands of lost teenagers onto a brighter path.”
Funding will be awarded to organisations across England with a proven track record in getting young people into work, apprenticeships, or training.