Ed Balls has announced new measures to support young people in education or training, as well as sanctions for those that refuse to participate.
The government is introducing legislation in tomorrow's Queen's Speech to raise the school leaving age to 18. However, this will not take effect until 2015.
This will be staggered with all 17-year-olds required to stay in education or training after 2013 but the schools secretary is today set to outline further interim measures to target NEETs [young people not in education, employment or training].
In a speech to the Fabian Society, Mr Balls warned the UK "cannot wait" until 2013 to "change the expectations and aspirations of young people."
He pointed to a rising demand for high end skills over the past 20 years and research predicting a 50 per cent rise in jobs demanding high skills.
The schools secretary called for a cultural change with an emphasis on high aspiration for all. Pupils and parents must realise it is no longer possible to leave school with no qualifications and work your way up, he added.
MR Balls added: "Raising the participation age is about social justice too - young people who leave education and training at 16 are disproportionately from poor families.
"Those who leave school early without good skills and qualifications are less likely to get a good job, while those who stay in education are more likely to gain further qualifications and are likely to earn more in the future."
Schools will be told to identity pupils at risk of becoming NEETs. The government has found persistent truants are six times more likely to leave school early and they will now be targeted by early intervention.
Mr Balls also said schools must offer an engaging and diverse curriculum to appeal to young people.
Outlining how the government plans to support NEETs and boost participation, he said the government will guarantee all 17-year-olds an offer of a place for continued learning.
To help young people get back into education, ministers also want to encourage colleges to start courses in January, meaning teenagers do not spend months waiting for courses to begin.
Mr Balls also announced educational maintenance awards will be extended to anyone taking an "entry to employment course" and the government will trial extending grants to all courses provided by local authorities.
Unemployed young people will face losing benefits if they refuse to take up a job offer. The government will make young people eligible for the New Deal from their 18th birthday, rather than waiting through a further six months of unemployment.
The Conservatives dismissed the plans as a "gimmick" designed to divert attention from the failures in basic standards.
Shadow schools secretary Michael Gove said the Conservatives did believe in encouraging more pupils to stay on after 16, but would do so by targeting the factors that cause young people to drop out.
Mr Gove said: "We must remove the legal limits on schools dealing with violence; put resources into early years reading to help the thousands who are being failed; and offer those who leave school at 16 the chance to get high quality education and training whenever they think it will be useful - not when politicians think it will be useful."
David Laws, Liberal Democrat school spokesman, said the scheme was typical of Gordon Brown's "nanny state" approach and it was not right to consider criminalising young people.
Mr Laws said: "It seems bizarre that while ministers are considering extending the vote to people aged over 16, their approach to education is based on threats, compulsion, fines, inspectors and criminal sanctions.
"There is a real problem with young people dropping out of education at 16, but the right approach is surely to tackle poor basic skills at an early age and making the curriculum more relevant."
The Liberal Democrats are campaigning for young people to be able to take the two years of education offered after 16 at a time that best suits them.