Up to half of young people in England and Wales are out of work or under-employed, with the true scale of the problem being "hidden", council leaders have claimed.
The Local Government Association warned that a third of all young people will be jobless or "trapped" in under-employment by 2018 unless local areas are given more control over skills and training.
More than two million people aged 16 to 24 in England and Wales could be looking for work, or be under-employed in the coming years, the group warned.
The LGA said government figures centred on unemployment, not young people working part-time or are over-qualified for their job.
Youth unemployment appears to be falling, but there are over 730,000 more young people out of work or underemployed than in 2005, said the report - published ahead of the latest unemployment figures tomorrow.
The LGA complained of "complicated" national funding rules in England, which it said left young people leaving school or training with skills that didn't match local jobs.
Local authorities said the Youth Contract was underperforming and should be devolved to councils, while the government's flagship Work Programme should be commissioned locally.
Around two billion hours of young people's time is being unused, it was claimed.
Local authorities could help cut youth unemployment by a fifth, saving the taxpayer £1.25 billion, said the report.
Peter Box, chairman of the LGA's Economy and Transport Board, said: "It is simply unacceptable that we expect a third of young people to be underemployed in 2018 and it would be a travesty if young people were being left behind when the rest of the economy is growing and benefiting from this.
"We need to listen to the young people that are telling us that they want more work and not let them fly under the radar because of employment statistics that make us think the situation is improving.
"We know that the Government is investing a lot to help young people into employment. But councils know the reality of what is happening on the ground and our relationships with local people and businesses could be used much more than it is at the moment.
"We know how successful local organisations, such as councils, businesses and education providers, can be when working together and we would urge the Government to use this to its advantage and give us a say in the schemes that are aiming to get young people into work."