Employers and trade unions have rejected suggestions in the Economic and Social Research Institute (ESRI) quarterly report that companies should turn away extra business or restrict recruitment, if these resulted in increased production costs.

But their views differed on the issue of pay restraint. Employer bodies welcomed the ESRI warning as "correct and timely" while union leaders said the income gap between rich and poor was widening.

Irish Business and Employers' Confederation director Mr Brian Geoghegan conceded house prices were a problem if the economy was to prevent serious wage drift. He urged the Government to act quickly to tackle the issue, but added that it "would not be appropriate for wages to follow the trend in house prices". "Wage moderation has been hugely successful in the achievement of a range of economic and social objectives," he said. Real standards of living had increased and employment had grown dramatically. "These achievements have been made because Irish business has become increasingly competitive. The danger of excessive wage growth puts this competitiveness at risk."

He said that he did not go along with the suggestion that industry should curb expansion plans. IBEC believed the correct response was "to ensure the current agreement on pay is implemented as intended and to expand the supply side of the labour market by every means possible".

The chairman of the Small Firms Association, Mr Kieran Crowley, rejected the idea that firms should resist taking on extra orders which resulted in increased production costs.

"Unsustainable wage increases are an acute danger", he said, "but wage increases in the productive sectors are good where the workers share in increased prosperity by productivity and efficiencies arising from their efforts."

SIPTU regional secretary Mr Jack O'Connor described the ESRI call for pay and employment constraints "extraordinary". These amounted to "a call on workers to continue subsidising the ongoing accumulation of wealth by other economic interests". "Calls for income control and wage restraint, while the cost of essentials like housing, healthcare, childcare and care of the aged continue to spiral in an unfettered market economy, are unfair, unreasonable and inequitable."

MSF national secretary Mr John Tierney said there was no evidence to support the ESRI contention that wage increases could undermine Ireland's competitiveness. Even in the building industry, "where demand for labour vastly outstrips supply, wage increases are not excessive", he said. "For the majority of workers, wage increases are very modest indeed." The national secretary of MANDATE, Mr John Douglas, described the ESRI's comments as "an insult to the lower paid. The reality of our economy is that the gap between lower-paid workers and the rest of the labour force is growing ever larger".

While the average industrial wage had risen by 56 per cent in the decade from 1988 to 1997, shop workers' wages had risen by only 32 per cent.

Indicative of the current mood among lower-paid workers was a meeting of scaffolders in Dublin, where increases of between 50 per cent and 300 per cent in hourly rates were demanded to bring them into line with building craftsmen. The scaffolders are threatening an "all-out" strike from March 18th.

Asked about the call for pay restraint, one scaffolder emerging from the meeting said that ESRI economists "don't live in the real world". He said that he needed a wage that would buy his family a home.