WASHINGTON -- Millions of workers in their prime have dropped out of the labor market in recent years, but many older Americans are delaying retirement and being added to the workforce in record numbers.

Nearly 1 in 5 Americans ages 65 and older are working or looking for jobs -- the highest in almost half a century.

The labor participation rates for other age groups have slid since the recession began at the end of 2007, most sharply for younger adults but also for people in their prime working years, their 30s to 50s.

The contrasting employment paths of seniors and other age groups reflect a long-term population and lifestyle shift intensified by the recession. And the trend has significant implications for the broader economy.

Having more older workers in the job market helps the country's precarious fiscal situation; by working, they're paying Social Security and other taxes rather than drawing public retirement and Medicare funds. The share of seniors claiming Social Security benefits fell last year to the lowest level since 1976.

But there is a trade-off: In this lackluster economy, the increasing employment of seniors means fewer jobs for their younger counterparts. Apart from the direct financial hit to individuals, the shift represents a big collective loss of purchasing power.

Young adults and prime-age workers spend comparatively more money because they are more apt to move, start families, send children to school and buy the latest gadgets. Consumer spending accounts for about two-thirds of the economy, and it has been sluggish during this recovery.

"One of the reasons is young people can't find jobs because older people are not leaving the workforce," said Sung Won Sohn, an economist at Cal State Channel Islands who has studied the issue. Discouraged, many younger workers are staying in school longer or sitting on the sidelines until their prospects improve.

That affects business at restaurants, furniture stores and electronics outlets. And it puts a squeeze on many local governments that rely on retail sales taxes for their revenue.

"As we get older, we require more services but buy less stuff," said Bob Murphy, the mayor of Lakewood, Colo., a community west of Denver with a growing elderly population. "We need to stabilize and sustain a revenue stream in a system [that's built on] where people buy things."

By age group, the nation's biggest spenders are those 35 to 44 and 45 to 54, government statistics show. On average, households with people of these ages spend about twice as much as those headed by older Americans for things such as eating out and entertainment, and they spend roughly 50% more for housing and transportation.

Seniors, of course, still make up a relatively small share of the total workers in America. But senior employment has jumped 27% in the last five years, surpassing 7 million in July, while adults ages 35 to 54 with jobs has fallen 8% during the same period.

In four months, Linda Madden will retire from her full-time administrative job at Colorado College, freeing her up to take long hikes in the southern Rockies and visit her three adult children and families scattered across the country.

But the 66-year-old has no plans to stop working. In fact, Madden already has a part-time job lined up, as a teaching director at a church-run school in Colorado Springs. "I need the income," she said.

Separated from her husband for about 15 years, Madden lives in a small bungalow in downtown Colorado Springs. Apart from expenses for yoga classes and her hiking club, she rarely buys things. She has an ordinary cellphone, not a smartphone. She's had the same television set for 15 years. Her desktop computer, nearing 11 years old, is well past the typical life span. "It still works fine," she said.

As frugal as she lives, Madden is nervous about giving up her full-time job because she doesn't know whether she'll have enough to maintain her lifestyle. Her future income will depend partly on a retirement annuity that's linked to the stock market.

"If you lost a lot and even if you recovered a lot of what was lost, the fluctuating stock market is constantly hanging over you," said Sara Rix, a senior advisor at the AARP Public Policy Institute in Washington.

The housing downturn also left many seniors less wealthy. Although those 50 and older typically have more equity in their homes than younger homeowners, more than 1.5 million of them have lost their homes since 2007 because of the mortgage crisis, the AARP institute found.

What's more, Pew surveys suggest that people 65 and older were the most likely to be bracing for a long recovery. That helps explain why so many older workers have put off retirement.

And many seniors, thanks to the recession, now see how shaky their 401(k) retirement plans are. Without the assurance of the old corporate pension plans, they don't know exactly how far their retirement savings will stretch.

Of course, it isn't just finances that are keeping many seniors in the workforce. Research shows many of the 78 million or so baby boomers, the oldest of whom is turning 66 this year, see working as a healthy way to stay active and productive.

And better educated, older workers will have more opportunities to keep working than earlier generations, suggesting that their labor-force participation will keep growing in the years ahead.

That may be fine in a healthy economy, but in the current recession-like climate for workers, there just aren't enough jobs to absorb older workers without crowding out younger ones.

It's common to see restaurants and retail shops, once the province of young workers, staffed by older workers. And some companies make no secret about wanting them.

"Most of these associates spent much of their lifetime taking care of their own homes," said Stephen Holmes, a spokesman for Home Depot, offering one reason the company hires many seniors for its stores.

Older workers are generally thought to be more expensive for employers -- and one might think their growing presence in the job market would tend to lift up overall wage rates. But that's not so, said Harry Holzer, a labor economist at Georgetown University.

"It simply gives employers more options to have them in the labor market longer," Holzer said. "Employers can decide whether or not their higher productivity and good judgment is enough to compensate for their higher earnings, [and] if they are, it makes it easier for employers who don't have to recruit and pay competitive wages."

Without a stronger economy and targeted job programs, Holzer sees few ways of avoiding more short-term pain for younger workers.

Riaz Tejani, a 34-year-old assistant professor at the Phoenix School of Law, sees retired judges, prosecutors and public defenders returning to academia to take teaching positions.

"There's nothing wrong with that because their experience is worth a lot," he said.

At the same time, though, Tejani struggled a little to land a job after he received his law degree and a doctorate in anthropology in 2010. "It did seem to me there is a generation gap in these places," he said of universities in general.

If the Great Recession hadn't struck, Mike Vaupel of Fort Lauderdale, Fla., might be considering early retirement from his government job as a meat inspector.

He is 60 years old and already has 34 years of service under his belt, enough to qualify him for an immediate pension equal to about 75% of his current pay. What's stopping him? For one, he and his wife own two homes -- including one they lease out -- and each property has lost about $100,000 in value since 2006.

But Vaupel worries far more about today's young people. He says his 34-year-old son had a two-year stretch of unemployment before finally landing a full-time security job this summer at Gulfstream Park's casino.

"I'm thinking to myself, 'How are they ever going to get ahead, because they can't get a job, or jobs out there are bad?' "

Vaupel knows that if he retired, it would open up a job for someone younger. But he isn't going anywhere.

"The best insurance during a recession is a full-time job," he said. "Guys my age or older are sticking around."

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don.lee@latimes.com

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