Services sector pay climbed almost 11 per cent last year, according to the Small Firms Association. The lobby group said such a rate of increase is unsustainable and unless addressed will fuel inflation and harm tourism.

Overall, earnings for workers at small business climbed 6 per cent on average in 2002, a three point drop on the previous year, the association's annual pay survey reveals.

With average wage rises running at twice the European level, small and medium employers are being forced to shed jobs in ever greater numbers warned the association's director, Mr Pat Delaney. The unemployment rate could hit 6.5 per cent if the problem is not brought under control.

"For the internationally exposed sectors pay increases have moderated over the past year. However, the trend in the domestic services sector remains a serious concern for both price inflation and employment retention," he said.

Seventy eight per cent of 12,130 workers questioned earned over €20,000 and 14 per cent over €35,000 per annum. Lowest recorded earnings were €14,500. Small firms were defined as companies employing 50 or less.

Wage inflation was highest in the craft sector (11 per cent) and information technology (11 per cent).

Bar and restaurant staff, cleaners and cooks reported 10.9 per cent pay increases.

Pay for retail workers rose 7.6 per cent, engineers and technicians 5 per cent, clerical 4.8 per cent. Supervisors 5.2 per cent and drivers 4.25 per cent. Production workers received wage increases of 4.25 per cent.

Basic remuneration for unskilled staff varied from €280.22 per week (cashier) to €583 (craft chargehand) among companies surveyed. The equivalent for salaried staff was €15,558 (trainee laboratory technician) to €43,334 (senior engineer).

Hours worked per week ranged from 39 hours (manual) 37.5 hours (salaried). Shift premia varied from 15.9 per cent to 33.2 per cent.

The survey found that 80 per cent of workers received sick pay, 57 per cent had work pension schemes and 29 per cent health insurance.

Twenty per cent received maternity benefit above minimum social welfare entitlements and 35 per cent enjoyed bonus schemes.

Slower wage inflation is a positive development but the future for Irish business - the services sector in particular - remains precarious, said Mr Delaney.

He said: "While pay increases have moderated over the past year, they are not fast enough or deep enough across the economy to have the necessary impact. The average service sector wage increase of 10.9 per cent remain a serious concern both for price inflation and employment retention. It is very bad news for our tourist industry."

He added: "If we are serious about maintaining employment then the critical message to take from the survey is that although pay has moderated in the past year to an average of 6 per cent it is still twice that of our international competitors.

"In the internationally traded sectors pay rates have now peaked. Sadly, it may already be too late for other exposed sectors to take necessary corrective measures."

Employees should look beyond basic remuneration and consider non-pay entitlements, Mr Delaney said.