Changes in demographic trends will reduce the economy's capacity to grow rapidly in the next decade, the ESRI Medium-Term Review says. However, a fall in the proportion of children and over-65s relative to the entire population will represent a "demographic window of opportunity" as fewer people will be dependant on workers.

While labour supply growth between 2000 and 2005 will remain higher than in the rest of the EU, it will be "well below" the growth experienced in the 1990s, when the population structure was "unusually favourable".

Forecasting a natural increase in labour supply of about 27,000 next year, the review says this will fall to under 12,000 by 2008. Overall, the present "exceptionally high" rate of 3 per cent annual growth in labour market supply will fall by 1 per cent between 2000 and 2005. Between 2005 and 2010, the annual labour market growth rate will be 1.5 per cent.

Key trends influencing this include a drop in the numbers of new entrants to the workforce arising from a sharp decline in the birth rate after 1980.

"When the cohort who are currently in their late teens finally enter the labour force in the first half of the next decade, the country will then have an extremely high proportion of its population in the working age groups, greatly reducing the burden on those who are working," the review says.

"With the very small proportion of the population who are old, the problems of ageing populations faced by many other OECD populations are not relevant to Ireland today." This is because many Irish people now aged over 65 emigrated between 1930 and 1960 and did not return.

Other factors will be a fall-off in the numbers of returning emigrants who will "probably constitute a minority of the forecast continuing inflow" in the future. This is because the stock of Irish emigrants abroad is beginning to fall.

While the review forecasts an average inflow of 15,000 immigrants per year in the next decade, net immigration will be lower between 2000 and 2005 due to high accommodation costs. Immigration is expected to rise between 2005 and 2010 after accommodation costs fall.

"Immigration, whether or not those involved are returning immigrants, has been a very important source of skilled labour in the 1990s and it has played a significant role in helping the economy to grow at such a rapid pace. The high level of education of immigrants contrasts with the experience of other EU countries," says the review.

"Any additional expansion in the labour force over the medium term will depend on substantial immigration flows."

The report says a high degree of mobility in the skilled labour market has tended to keep costs from rising too rapidly. "It makes Irish labour market closer to that of the US than that of other EU national labour markets."

Rising levels of educational attainment will continue to bolster the economy. About 30 per cent of the labour force will have a third-level education by 2001, says the review, and this will rise to 40 per cent by 2011.

"Because the participation rates in education have continued to rise over the 1990s, and in the case of third-level education rising even more rapidly than before, there will be a continual gradual upgrading of the human capital [potential value] of the labour force for many years to come."

While the participation rate in the labour market of well-educated women is already above the EU average in the 25-29 age group, this is expected to become the highest such rate in the EU. With education attainment included, Irish rates of female participation in this age group are already among the highest in the OECD area.

In contrast to the 1990s, a substantial rise in female labour supply in the next decade is likely to come from older women whose families are reared, and possibly among younger women of limited education. "For older women, changes in the availability of childcare and flexible working arrangements are likely to play a less important role than changes in the tax and welfare systems."

The rising participation of women in the labour force will contrast with that of men. This is due to two factors. More men (and women) under 25 will remain in education while older men will retire ever-earlier, following a trend in all EU countries.