Slower economic growth will postpone, but not eliminate, the labour shortage, a new FAS report says. Stating that the Republic will face increasing competition from other developed economies when seeking skilled workers, the State training and jobs authority says the shortage is driving wages up and remains "the greatest threat" to prosperity.

"The recent slowdown in the rate of economic growth does not alter the underlying position of an ever-tighter labour market," the authority says.

"What we are now confronted by is not just skills shortages in certain isolated sectors but endemic labour shortages throughout most of the economy."

The pool of young people available to join the workforce for the first time will fall in the next 10 years, FAS says. It adds that the increase in female participation will slow to a virtual standstill. When considered with the fall in unemployment, the authority says this means up to 200,000 overseas workers will be required by 2006.

"When the immigration figures for the year to April 2001 are published next September, they are almost certain to show a large increase on both the net and gross immigration figures for 2000 - 20,000 and 40,000 respectively."

The Republic's position was not unique, FAS added. "The traditional destination countries for immigrants such as the US, Canada, Australia, the UK, France and Germany have been joined over the past decade by new countries including Spain, Italy and Ireland."

On pay, its latest internal report on labour market conditions says there are clear signs that higher wages are hindering the State's ability to attract fresh overseas investment. "While the recent loss of a number of investment projects to other mainly east European countries, may not have been due solely to rising Irish labour costs, it would be unwise to ignore any lessons such episodes have to offer."

FAS cites Economic and Social Research Institute (ESRI) estimates suggesting wages will rise by 10 per cent this year after a 7.8 per cent increase in 2000. "This represents a cumulative increase of almost 19 per cent in Irish wages in just two years while average euro-zone inflation is unlikely to exceed 5 per cent over the same period."

The authority adds: "There is no way that these very high wage increases can be sustained without incurring a significant erosion in our international competitiveness.

"Already there are clear indications that indigenous employers are being `crowded out' of the labour market by higher wages with industrial employment rising by just 2.2 per cent to 321,000 in the year to November as against a 3.8 per cent increase in overall employment."

Recent lay-offs in the IT and other high-tech sectors are largely cyclical and unlikely to alter the gap between demand for labour and supply.

"The labour market remains tight with the Economic and Social Research Institute forecasting an average unemployment rate of 3.3 per cent this year and 3.2 per cent next year."