Despite the UK spending more than average on education, there has been "no change" in the country's abilities in the basic subjects, according to the latest results from the Organisation for Economic Co-operation and Development (OECD).
The UK was ranked 26th for maths, 23rd for reading and 21st for science out of 34 member countries.
The Institute of Directors (IOD) said the OECD report revealed "historic failings" and raises serious questions about the UK's attitude to education.
The IOD's head of education and skills Mike Harris said the generation of young people tested in the study will be looking for jobs in a competitive and unforgiving global race. He added the countries with an "unrelenting" focus on "quality" and "rigour" will be the ones who win.
"The UK appears to have its feet shackled at the starting line," said Harris. "We know from previous OECD skills surveys that, despite billions of pounds of investment in education over the last 15 years, school leavers in the UK are among the least literate and numerate in the developed world."
John Wastnage, skills policy adviser at the British Chambers of Commerce (BCC), said: "These results are not a surprise but should be a wake-up call, and reinforce the urgency of giving young people in this country the skills to compete in a global economy.
"Young people should leave the education system with a career direction that is relevant to them, realistic expectations about entry level jobs, and the attitude, passion and skills that employers are looking for."
Luke Johnson, the serial entrepreneur who recently sold his stake in restaurant chain Giraffe to Tesco, warned the UK's economic success was dependent on good schools. "The rest of the world is doing better, globalisation means other countries catching up, and to compete we have to be better educated," he said. "Students need to be employable, they need skills for the workplace."
The tests in science, maths, and reading were taken by 500,000 15-year-olds in 65 countries. The results sparked an angry exchange in the House of Commons yesterday, with Labour attacking education secretary Michael Gove's (pictured) reforms.
However, Gove blamed the failings on Labour. "These poor results show the last Government failed to secure the improvements in school standards our young people desperately need," he said.
"Labour poured billions of pounds into schools and ratcheted up exam grades - yet our education system stagnated and we fell behind other nations.
"This performance underlines the urgent need for our reforms. Only by learning from other nations and confronting failure at home will we give young people a fighting chance of competing for the jobs of the future."
China topped the international league table for maths, science and reading.