Ireland's low unemployment rate gives a flattering picture of the real state of the labour market, according to a study carried out by FÁS, writes Chris Dooley, Industry and Employment Correspondent.

It says productivity figures for the economy are "misleading", while a lack of social inclusion continues to be a problem.

The report, presented to last week's FÁS board meeting, says the Irish unemployment rate of 4.4 per cent compares "extremely favourably" with the EU average of 7.8 per cent.

However, a comparison of employment rates, which the EU considers the "main barometer" of labour market performance, shows the Republic is only slightly ahead of the EU average.

This is due to a higher participation rate in the labour market in other EU states.

When measured purely on the traditional basis of comparing unemployment rates, the labour market looks in "extremely good shape" relative to the rest of the EU, the report points out.

"However, when the narrow 'unemployment rate approach' is eschewed for a wider assessment of the labour market, Ireland's performance is more ambiguous."

The Republic's strong showing on productivity, for example, has been heavily influenced by a few exceptional sectors, notably chemicals and electronics, the study finds. These two sectors account for only a small proportion of manufacturing employment.

The use of GDP figures as a measure of productivity can also provide a "somewhat misleading" picture, says the report, which is titled The Performance of the Irish Labour Market in an EU Context.

"Using GDP instead of GNP will overstate the value of the output that stays in Ireland as the former measure does not take into account net factor outflows [mainly profit repatriation by multinationals based in Ireland\].

"Whereas GDP and GNP figures tend to coincide in most countries, in Ireland annual growth in GDP was on average about 1.25 per cent faster than GNP during the late 1990s."

The study, compiled by Mr Brian McCormick of FÁS's planning and research unit, used 10 EU structural indicators to provide a broad analysis of the labour market's performance.

One indicator measured the number of people living in households where no-one was employed, as a percentage of the total population.

The figures for the Republic show that the percentage of people living in "jobless households" is twice the unemployment rate.

This means that, by definition, unemployment in the Republic must be more highly concentrated in larger households, says the report.

"It seems that more needs to be done in Ireland to help/encourage the unemployed in large households into employment if the cycle of persistent joblessness in households is to be avoided and social inclusion is to be achieved."

The study concludes that the labour market is performing well overall. "Nevertheless, there are still aspects of our labour market where there is considerable room for improvement."