A "wage insurance scheme" to compensate workers made redundant because of international competition should be considered by the Government, Fás said yesterday.

In its annual review of the labour market, the State training and jobs agency said a "thorough investigation" of the costs and benefits of such a scheme should carried out.

The review said the labour force grew by 95,000 this year - the largest increase in the history of the State. It predicts that employment growth will moderate in 2006, but a net increase in jobs of 40,000 is still expected.

However, unless there are improvements in competitiveness, unemployment could rise in the medium term, the report warns.

The wage insurance proposal received a lukewarm reception, however, from Minister for Employment Micheál Martin, who said the Government was "wary" of wage subsidisation ideas.

Fás said that while globalisation had been the "motive force" in Irish economic development, the future would bring very difficult challenges for traditional export sectors such as food and engineering.

It would be important, it said, to have in place policies that would help displaced workers regain employment as soon as possible.

Wage insurance schemes had been introduced in the United States, Germany and France over the past two years.

"These schemes are designed to compensate workers made redundant in sectors most exposed to international competition by providing an earnings top-up on any subsequent job they take up, where their new jobs pays substantially less than their old job," it said.

Fás economist Brian McCormick said the scheme could be targeted at certain sectors and at workers over a certain age. The US scheme, for example, was confined to those aged 50 or over.

A qualifying worker who lost their job and took up another one on lower pay could have part of the shortfall made up for a period of time.

The "beauty of the scheme", he said, was that it could be designed to encourage workers made redundant to take up a new job as soon as possible.