iPod generation struggling to read and write

They said literacy and numeracy standards are so low that some young recruits need remedial lessons.

The warning from the Confederation of British Industry casts a shadow over the release on Thursday of what are expected to be record GCSE results.

A survey for the business group showed that 52 per cent of bosses think youngsters struggle to communicate and 50 per cent say they cannot do simple sums.

One in seven employers said they had had to pay for training to bring young staff up to scratch.

The CBI warned that the educational failings are jeopardising the health of the economy.

Richard Lambert, the group's director-general, said: "Young people are clearly doing some things very well.

"Their fluency with iPods, mobiles and MySpace has translated well into the workplace, and often gives them an edge over their bosses."

But he added: "Basic literacy and numeracy problems are a nightmare for business and for individuals, so we have to get these essentials right."

Professor Dylan Wiliam, of London's Institute of Education, said GCSEs were stuck in the "19th century" because they failed to push pupils to think critically.

Some 62.4 per cent of pupils gained a grade C or better at GCSE last year and Thursday's results are expected to be even better.

The CBI pointed out, however, that a minority of candidates managed a good grade in both English and maths in 2006.

Further doubts about the exams emerged yesterday with news that - in a shake-up scheduled for 2009 - pupils may be allowed to retake parts of their courses as they go along.

Instead of results relying on exams at the end of two years of study, courses would be split into separately-tested units.

Pupils would be able to be assessed on up to half of each GCSE part-way through their studies and resit individual units if their marks are disappointing. Assessed coursework would be cut back.

Similar reforms to A-levels, in which candidates are allowed unlimited resits, are said to have fuelled grade inflation.

In the first year of the new system, the A-level pass rate jumped from 89.8 per cent to 94.3 per cent.

The Qualifications and Curriculum Authority, which is consulting on the GCSE reforms, says it believes pupils should only have one chance to resit a GCSE unit.

Any suspicion of "dumbing down" is likely to see more schools abandon GCSEs and switch to tougher qualifications such as the International GCSE.

Geoff Lucas, secretary of the Headmasters' and Headmistresses' Conference of elite independent schools, said: "The experience from A-levels ought to be heeded very carefully.

"It could well act as a further incentive for more independent schools to take up the IGCSE."

Modular A-levels had "undoubtedly made it much easier for students to reach the standard", he added.

Alan Smithers, professor of education at Buckingham University, said: "The breaking up of the course can mean that pupils may not have an integrated understanding of the subject.

"Modularising the GCSE is likely to increase overall results.

"This is partly because it will be easier for the individuals to perform at a higher level through the restructuring of the exam."

He added: "The retaking of units - even once - introduces an element of unfairness."