One in three British employers has to send workers for remedial training to teach them basic English and maths skills that they have failed to learn at school, employers have complained.
The Confederation of British Industry has called for urgent action to tackle the shortcomings of the UK education system.
Its call has come as a separate UK study has concluded that, contradictorily, employers are placing much more emphasis on the "soft skills" of school leavers such as communication skills and work ethic rather than literacy and numeracy.
The CBI study found that around a fifth of employers often found non-graduate recruits of all ages had literacy or numeracy problems, yet a third expected the levels of skills required for work would increase over the next five years.
It said workers needed to be able to do simple mental arithmetic without a calculator, interpret data, have competence in percentages and calculate proportions.
Written communication priorities including legible handwriting, communicating information orally, understanding written instructions, and correct grammar and spelling were the areas of literacy most in need of improvement.
Apart from the cost of having to pay for remedial training, UK businesses had to carry the burden in terms of low productivity, especially compared with their international competitors whose new recruits can boast higher functional skills, the CBI warned.
CBI director-general Richard Lambert said: "We must raise our game on basic skills in this country.
"The UK simply can't match the low labour costs of China and India. We have to compete on the basis of quality, and that means improving our skills base, starting with the very basics.
"Employers' views on numeracy and literacy are crystal clear: people need to be able to read and write fluently and to carry out basic mental arithmetic. Far too many school-leavers struggle with these essential life skills.
"The fact that one in three employers ran remedial courses for their staff in the last year is a sad indictment of how the education system has let young people down," he concluded.
But the latest KPMG study from the Chartered Institute of Personnel and Development has reached startlingly different conclusions.
Its study of more than 1,400 UK employers found that, while a quarter listed literacy over a fifth numeracy as the key attributes they were looking for when recruiting, communication skills, work ethic and personality were deemed just as important.
Rebecca Clake, organisation and resourcing adviser at the CIPD, said: "It has become almost an annual ritual to focus on the literacy and numeracy of school leavers – but our research shows employers want more focus on communication, interpersonal skills and developing a work ethic.
"These findings suggest that the education system might help close the 'employability gap' by seeking to introduce more oral-based tests and more work experience schemes."
The CBI study said employers in the manufacturing and construction sector reported greater problems with innumeracy than in service industries. But both sectors reported a similar spread of literacy problems.
One catering company manager said there was a "total lack of knowledge of times tables" among staff which meant many were unable to carry out basic calculations such as adding VAT or adjusting sale prices.
At a car company, a training manager said: "Some people with GCSEs in maths and English can't get through our basic skills tests, which is worrying... people who fail have difficulties with basic reading and writing, fractions, multiplication and division."
And the personnel manager at one construction firm told the CBI: "The standard of literacy shown by people filling in the double-sided application form for a trainee position is often very poor. Many applicants can't construct a sentence and their grammar, handwriting and spelling are awful."
Businesses often found that employees who suffered from literacy and numeracy problems felt too ashamed to tell their manager.
One personnel development manager at a business consultancy said: "People become very adept at hiding their lack of literacy and numeracy. For instance one employee used to ask his wife to write his reports for him in the evenings.
"Another very capable employee hid his dyslexia very effectively but it came to light when he refused to apply for promotion. After two hours discussion he finally said he could not write – the same individual now has a masters' degree," he added.