Germany is producing too few university graduates to manage the transition to a knowledge-based service economy, according to a report by the influential German Institute for Economics (IW).
In 1998, only 14 per cent of 25 to 64-year-olds in Germany had a higher education qualification, compared with per cent in the United States and 15 per cent in the United Kingdom.
Eight out of ten of Germany's working population have secondary school or vocational certificates, higher than the average six out of ten for Organisation for Economic Cooperation and Development countries.
But more Germans should be employed in the service sector, a barometer of a country's economic maturity, the IW report says. Just 63 per cent of Germans are employed in the service sector compared with 73 per cent in the US and 71.4 per cent in the UK.
Countries with a well-developed service sector have an above average number of graduates - the tertiary sector creates opportunities for highly qualified as well as low-qualified workers, the IW said.
The IW calls for Germany to increase its investment in higher education from the 1 per cent of gross domestic product it spent in 1998 to 1.28 per cent. The US spends 2.7 per cent.
The IW says universities should look for other sources of income, such as donations and sponsorship, and should think about introducing student fees.
In 1998, fewer than a third of German 18 to 20-year-olds sought a higher education place. In Sweden it was 50 per cent.