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I have a similar problem in my QUB save where all my youths are on €80 a week, despite the fact that the majority of my first team players are on €20 a week.
Did you try the "Offer to clubs" button? That's how i got rid of most of my "dead wood" The players that no-one wanted, I just released on a free once said players contracts were up.
Have the same problem. Only rarely do I get rid of my reserves, even though they are good enough to play for low BGN/S teams. It's pretty annoying as they're hogging up money I'd rather not spend on paying donkeys.
I believe there was a similar thread on the players coming through the youth system.
I have problems like this, where players would turn 17 and would have an automatic 80/wk salary for two years, right when the computer would ask me if i wanted to offer a contract (so I couldn't release the player, but wait for two years or pay lots of money). I think Scott's idea is a good one, let's see how painful it becomes.
I always deal with youth contracts myself. In FM08 the way these contracts work has changed compared to previous versions it seems. My AssMan seems to think all my youngsters are carp but I just decided to give them all short senior contracts so I can see for myself and eventually let them go if they do suck enormous arse.