87 Jetta Turbo Diesel 5sp Trans not engaging

From what your describing there is only 2 things that would cause this, 1: clutch cable out of adjustment, or 2: the clutch is done, alot of times on these older vdubs the two plastic shifter links wear out, they are a quick and simple part to replace and very cheap from your local vdub dealer only. You did say you could hear the shifter going threw the gears if you are 100% sure the gear box is engaging each gear then the only two things I mentioned at the beginning it can be. Try adjusting the cable first, good luck.

You can actually open up the end of the tranny, look at 5th gear and see if it's engaging/disengaging properly. It's really easy. Just make sure you don't get any dirt or sand in. But before you do that GET A COPY OF BENTLEY's manual for your VW.