Young people lack workplace skills such as communication and team working, a study among employers has suggested.
The British Chambers of Commerce survey of 3,000 firms found nine out of 10 thought school leavers were not ready for employment, and more than half said it was the same with graduates.
The chambers called for universal work experience in all secondary schools.
The Department for Education said it was looking at more ways to help schools and businesses co-operate.
Three-quarters of the companies surveyed put the situation down to a lack of work experience, and more than 50% said young people did not have even basic skills such as communication.
However, half said they did not offer work experience placements themselves.
BCC director general John Longworth said many businesses took the view that hiring a young person was a "risky" move.
"Business people tend to favour more skilled and experienced applicants - and while they do sympathise, their primary function is to run a business which means making business decisions," he said.
"Firms need young people that are resilient, good communicators and understand how to work as part of a team.
"We believe that successive governments have failed our young people by not properly equipping them for their future careers."
He added: "Government and educational institutions must be more focused on equipping young people for the workplace and in turn businesses must be more willing to give them a chance.
"In practice, this means introducing business governance into schools, proper careers advice with direct links to business and measuring the success of schools and universities based on the employment outcomes of pupils."
The BCC said assessments of educational establishments should include information about employment as well as exam results.
A Department for Education spokesman said: "Our plan for education is designed to give every child the knowledge and skills they need to prepare them for life in modern Britain, and getting them ready for the world of work is part of this.
"We have already updated guidance for schools to encourage closer links with employers to deliver career insight talks, mentoring and work tasters in order to open pupils' eyes to the opportunities available to them and help them to make the right choices at the right time.
"New University Technical Colleges and studio schools are also giving young people a better chance than ever of developing a specialism that will help build a rewarding career.
"But there is more to do and we are looking closely at how else we can encourage employers and schools to improve how they work together."
Shadow education secretary Tristram Hunt said growing numbers of school pupils were left "ill-equipped and unprepared to make informed decisions about the range of career routes open to them - whether that be through academic or vocational learning".
He said that vocational education had been a "blind spot" for this government.
He added: "Ministers have consistently refused to show leadership, despite a tirade of criticism from the business community and from groups representing young people.
"Under Labour, all young people will be guaranteed exposure to the workplace, with a real focus placed on schools and colleges raising their game when it comes to delivering the advice and support that young people need for successful careers and further study."