Today's generation of school leavers are worse at maths and reading than their grandparents.
The Organisation for Economic Co-operation and Development said England was the only country where the oldest age group studied (55-65) had a higher proficiency in literacy and numeracy than the youngest (16-24) after other factors such as sex, socio-economic background and type of occupation were taken into account.
It found that 16 to 24-year-olds in England are among the least literate and numerate in the world, coming 22nd out of 24 countries for reading skills and 21st for maths.
It also found that a quarter of adults in England had the maths skills of a 10-year-old.
The organisation warned England would struggle with competitors in global markets unless urgent action was taken.
Andreas Schleicher, of the OECD, said young adults had more qualifications than those nearing retirement, but not greater abilities. He said the finding 'doesn't look good for the UK'.
The 466-page study was the first carried out by the OECD into the work skills of 16 to 65-year-olds, establishing their abilities in literacy, numeracy and problem solving.
A total of 166,000 were interviewed in 24 countries, including 9,000 in England and Northern Ireland. Scotland and Wales were not covered.
The report said the 'talent pool of highly skilled adults in England... is likely to shrink relative to that of other countries' in the next few decades.
John Allan, of the Federation of Small Businesses, said: "The OECD report highlights what our members tell us – that young people don't have the literacy and numeracy skills to do the job properly. We need action to improve these crucial basic skills from an early age."
Mike Harris, of the Institute of Directors, said the report 'underlines the credibility gap between the picture painted by decades of rises in exam pass rates and employers' real-world experience of interviewing and employing people'.