Over half (55%) of UK employers admit they are more likely to hire someone recommended by a colleague, friend or a family member.
Meanwhile 54% of young people feel anxious about being left behind by the job market and 42% think their dream job is out of their reach because of their background.
While the majority (95%) of employers said their application process judges applicants equally, 32% said it is hard for candidates to land a job without a connection.
Nepotism is a significant barrier to social mobility, according to Nick Harrison, chief executive of charity the Sutton Trust.
Speaking to HR magazine, he said: “It’s important that no one is held back by their background, and career opportunities should be based on talent and potential rather than family background or who you know.
“Who holds the most influential and well-paid positions in society also matters because their decisions affect our day-to-day lives. Yet young people from disadvantaged backgrounds still face significant barriers to accessing the most competitive careers.”
A quarter (24%) of employers say they would be more likely to hire a candidate if they attended the same university as them, with this figure rising to 34% if a candidate shared a similar background.
The study also found 28% of employers have turned an applicant down because of the way they speak, while 25% say they have rejected an applicant because of the way they look.
Harrison said bias is causing employers to miss out on talent and potential.
He added: “The most prestigious careers and positions of power and influence continue to be dominated by those from privileged backgrounds. This means we're failing to make the most of all the talent available in the country.
“It would be helpful if, for example, legislation was brought forward to require organisations with over 250 employees to measure the socio-economic backgrounds of their workforce, as they already do to improve ethnic and gender diversity.”
Read more: HR's legal duty in nepotism
KFC announced that by 2030, it aims for a third of all new hires to be people aged between 16 and 24 who have faced barriers to employment.
They will be hired through an eight-week programme intended to boost young people’s confidence and work skills, and that provides practical work experience and a job interview on completion.
A KFC spokesperson told HR magazine young people need more employment support to tackle nepotism.
They said: “Young people can face the greatest barriers when entering the workforce. Inequality in economic and educational opportunities have been found to impact a young person’s likelihood of gaining qualifications in school and impact their long-term employment prospects.
“Businesses can help by investing in employment programmes that support and empower young people to take that first step in the world of work, whatever their background or experiences, giving the next generation the tools and support they need to truly unlock the potential of today’s young people.”
The study included over 4,000 16-25-year-olds across the UK and 500 businesses.