Employment in manufacturing has slumped 13 per cent since reaching a peak in 2000, according to a Forfás report commissioned by the Minister for Enterprise, Trade and Employment Micheál Martin.
The report blames the trend on overseas companies shifting labour-intensive operations to cheaper locations and on increased productivity, with fewer people being needed to produce goods.
The number of jobs in the sector fell by 31,000 in the five years to the end of 2005, following a 30-year spell of expansion in manufacturing employment.
By contrast, the services sector saw a 21 per cent gain in employment over the same period. More than 411,000 people entered the services job market between 1997 and last year.
The biggest job losses in manufacturing over the period were posted by the textiles sector, the office machinery and equipment sector, the broadcast and communication equipment sector, the electrical machinery sector and by pulp and paper manufacturers.
Mounting concern about the future of manufacturing in Ireland amid high-profile factory closures prompted the Minister to request a report from Forfás, he said.
"Is the goose that laid the golden egg in terminal decline?" Mr Martin asked at a press conference. "The main message from me is that manufacturing continues to play a central role in this economy. It is likely to employ fewer people in the future but this is a global trend, a trend that we bucked in the 1990s but which is now asserting itself here."
The Minister pointed out that while manufacturing jobs were declining, output in the sector rose 28 per cent in the five-year period, as productivity increased.
The average price paid for goods fell 10 per cent and the number of firms in the sector remained stable, indicating that fewer people produced more goods. However, productivity growth was concentrated to a limited number of sectors and dominated by foreign-owned firms.
Overseas companies assisted by State agencies accounted for 87 per cent of exports of manufactured goods, the Forfás report showed. Forty-one per cent of foreign-owned companies were based in the US, while 20 per cent had their headquarters in the UK.
Mr Martin said he was responding to the Forfás review of the changing nature of manufacturing in Ireland by setting up a high-level manufacturing group to identify further measures to tackle the challenges facing the sector, a move agreed during the social partnership talks.
Martin Cronin, the chief executive of Forfás, said the advisory body's recommendations included making Ireland "the best in the world" at educating and training people and at developing new products and services. "Our future strategy, as a small country, should be to focus on areas where we are better than other countries," Mr Cronin said.
"We have expertise, for example, in semiconductor design and in functional foods. As globalisation progresses, we have to deepen our expertise." Ireland's most significant service export is computer services, which accounts for 35 per cent of total services exports, while insurance and finance generate a quarter of our services exports, Forfás found.
Services made up 35 per cent of total Irish exports last year, up from 22 per cent in 2000, growth that helped rank Ireland as the world's 13th highest exporter of services.
