Young adults in the United States are being squeezed out of the labor force as older workers either delay retirement or seek jobs to rebuild nest eggs destroyed by the recession, a study showed on Wednesday.

The size of the labor force fell 6.3 percent for young workers, but increased 8.5 percent for workers 55 years and older between December 2007 and January 2010, according to the study by the Washington-based Economic Policy Institute (EPI).

This is a troubling development, young adults are less prepared to deal with unemployment than other age groups. Without significant prior full-time work experience, many may not qualify for unemployment insurance, or the social safety net, the EPI said.

But the AARP -- a nonprofit organization focused on people 50 years and older -- disagreed with the EPI study. It argued that the employment situation had deteriorated more for older workers than for their younger counterparts since the recession struck in December 2007.

Older workers are not getting hired in the place of younger workers, although some of them are remaining in the labor force longer to make up for losses suffered in the stock market, the AARP said.

Some of the increase is also due to the aging of the boomers, large numbers of whom are moving into the older worker ranks. And perhaps some of it is due to the impact of policies designed to encourage older workers to remain longer at work.

The housing-led recession has had devastating effects on the labor market. With home values and retirement savings destroyed, older workers have been forced to either continue working or seek employment.

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The EPI study noted that even if young workers were employed, they were most likely to be in jobs below their skills level.

With such little financial security, young workers have less freedom to wait out a downturn and so they frequently take whatever job is available, even if it pays less than a job that matches their skill level, it said.

This is a serious drain on labor market potential -- lower earnings, lower output, lower productivity, and the displacement of less-educated workers. Low wages also jeopardize the return to higher education.

While young workers accounted for only 13.5 percent of the total labor force, one in every four unemployed people in the United States was under the age of 25, according to the study.

On the other hand, workers 55 years and older, who made 19.1 percent of the labor force, only had a 13.4 percent unemployment rate, it said.

The study also found that younger workers were also experiencing longer periods of unemployment and on average it took slightly less than six months to get a job in December.

Although the economy has started growing again and the labor market is on a recovery path, the pace is probably too slow for any meaningful change in the young workers' fortunes.

It is not enough for the economy to recover. Young adults need robust growth in the labor market to minimize the effects of the current recession, said the EPI.

(Reporting by Lucia Mutikani; Editing by Andrew Hay)

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