UNEMPLOYMENT will fall dramatically over the coming years, while the economy will continue to grow by more than 5 per cent a year, according to a new report published today.
Unemployment is set to fall to 8.6 per cent by 2000 and to 7 per cent by 2005, by which time Irish living standards will be on a par with the EU average, according to the Economic and Social Research Institute's latest medium term review.
But it warns a tight rein must be kept on public sector pay claims if economic buoyancy is to continue. The forecast is crucially" dependent on adherence to the current Partnership 2000 agreement and on its successors being at moderate levels.
The biggest danger, the institute says, is that an excessive rise in expectations could feed into wage inflation or unsupportable demands on the Exchequer.
Mr John FitzGerald, coauthor of the report, warned that the Irish cannot expect a German standard of living while output is below Germany's.
The report was welcomed last night by the Minister for Finance, Mr Quinn, who echoed the ESRI's warning about adherence to Partnership 2000. "The prize for restraint will be large," he said.
In a statement, the Taoiseach, Mr Bruton, said it was of crucial importance that the Government's policies, which had generated the high rate of economic growth, continued. "Nothing neither vested interests nor electoral opportunism can be allowed to disturb or threaten the process, which, within the lifetime of the next Government, is likely to raise Irish living standards above the level of our neighbour, Britain, and up to that of the rest of the European Union..."
The report also said major investment in infrastructure such as roads will be necessary to avoid congestion and ensure Ireland remains a desirable business location. Congestion in the housing market, with skilled emigrants less keen to return because of the high cost of housing, could also have a negative impact, Mr FitzGerald warned.
A key component of the boom is the rising standard of education, the report says. As workers with only primary education have retired they have been replaced by people with third level education. This has increased output and boosted the economy, Mr FitzGerald said.
Rising educational attainment has driven increasing female participation and has enhanced the earning power of Irish people.
Social partnership and pay agreements have also been essential for the Irish success story, Mr FitzGerald said.
In addition, the fall off in the birth rate and the ending of net emigration means the ratio of people not working to those in employment is falling very rapidly.
From having one of Europe's highest dependency ratios, Ireland will have one of the lowest by 2010. This provides a "window of opportunity" over the next 20 years and government can take advantage of it. Where the rapid increase in the supply of labour has traditionally been seen as Ireland's problem, it now looks like being an opportunity, the report says.
The ESRI is calling for Government borrowing to be eliminated and investment in infrastructure increased almost threefold with moderate reductions in tax, particularly for corporations.
According to the institute, the economy should grow at 5.5 per cent a year until the turn of the century, falling to 5 per cent a year in 2000-2005 and to 4 to 4.25 per cent from 2005 to 2010.
At the same time, employment will continue to grow at 3 per cent a year, falling back to 2 per cent a year until 2005 and to 1.5 per cent over the following five years. But the ESRI stresses these are aver ages the growth in any one year could be significantly higher or lower.
Rapid employment growth should also lead to a "sustained reduction in unemployment" for the first time. This will be helped by rising educational attainment. However, those who leave school early without qualifications will still be "seriously disadvantaged".
The study also considers the possible effects on the economy if monetary union does not go ahead. Mr FitzGerald says interest rates could then end up as much as 3 percentage points higher than they would otherwise have been, while growth would fall by about 2 percentage points.