During the brief Celtic Tiger period from 1993 to 2001, our living standards rose by one-half. But this was due to two special factors - both of which were essentially temporary in character.
The first was the impact upon our national productivity of a quite exceptional inflow of new US investment. For a number of years Ireland, with only 1 per cent of Europe's population, attracted up to 25 per cent of all US greenfield industrial investment in our continent. The new technology and skills that this inflow brought contributed to a 4 per cent annual increase in output per worker at national level, ie productivity.
The second factor, which played an even larger role in boosting our living standards during this time, was the huge increase in the total number of people at work, and the corresponding drop in the proportion of dependants in our population. Several factors contributed to this: the exceptional inflows of young workers emerging from the educational system and of women transferring from "home duties" to the labour force, and also the flow of unemployed people returning to work and of recent emigrants coming back to jobs here.
Within a decade these inflows into our labour-force reduced from 230 to 115 the number of dependants that every 100 workers had to support, either directly within their families or indirectly through taxation.
That huge increase in the proportion of our population engaged in work, and the consequential drop in our dependency ratio - more rapid than had ever previously been seen anywhere in Europe in peacetime - accounted for more than half of the improvement in our living standards. But that extraordinary combination of productivity growth and reduced dependency, which distinguished the 1990s in Ireland from any other decade, was a temporary phenomenon.
The flow of new US investment could not have continued at that rate - if it had, we could not have supplied the numbers of additional Irish workers needed to meet such a huge demand. Indeed, by 2000 our sources of additional Irish labour were drying up, and since then we have been depending upon immigrant labour to sustain our growth.
The past half-dozen years since the end of the Celtic Tiger have also been marked by the start of a shift from an industrialising economy to a service economy - a shift all other industrialised countries had experienced earlier. And most services supplied to the domestic market are labour-intensive, thus providing little room for significant improvements in productivity.
There now remain few opportunities to improve our dependency ratio further, and the switch to a service economy has also greatly reduced the possibility of continuing to raise productivity rapidly.
What chance is there of continuing rapid improvements in our living standards in the years ahead?
In future, our standard of living is likely to rise much more slowly than we became accustomed to during the 1990s. However, I don't think that with most people this particular penny has yet dropped.
I have not seen much in our media about the sudden halt in the growth of productivity that started at the end of 2003, or about the possible significance of this development for our future living standards.
Since the end of 2003, output per worker in Ireland has been almost static. It seems to have risen by only 1 per cent in 2004 and not at all in 2005. Even if the CSO was in due course to revise upwards its current estimates of economic growth in those two years - which is quite possible - any such revision is unlikely to be on a scale that would show any appreciable rise in productivity.
We have yet to face the fact that improvements in our material living standards must ultimately depend on the labour productivity factor - for I think there is now little room to escape from that constraint by means of further improving our ratio of dependants to workers. During the past two years we have increased our volume of output only by drawing in immigrant workers on a very large scale, for we no longer seem to have the capacity to do so by raising our labour productivity by any significant amount.
Although this phenomenon of almost static productivity had started to emerge in the first quarter of 2004, early last year the ESRI was still expecting that a 5 per cent increase in national output would be achieved in 2005 with an increase of less than 2 per cent in our workforce.
In the event, output in 2005 actually rose fractionally more than the institute had predicted - but that required an increase in our workforce almost 2½ times greater than that which the ESRI had expected, ie the employment of 50,000 more workers than it had allowed for.
For the current year the institute has been more realistic in assuming an output increase of over 5 per cent will require a 3.5 per cent increase in the workforce, which implies a 1.5 per cent productivity increase. But I believe they may be optimistic in believing that in 2007 productivity will rise by as much as 2.5 per cent.
Despite the halt in productivity growth, since 2003 private consumption per head - the measure of material living standards - has continued to rise by 3 to 4 per cent a year, at the cost of an emerging balance of payments deficit - and is forecast by the ESRI to increase by a further 4.5 per cent next year.
However, in the absence of improvements in output per worker, the current spending spree, financed by borrowing, could not continue indefinitely. And, on top of the uncertainty created by our huge growth in dwelling construction, this new factor introduces a further element of uncertainty into our economic prospects in the latter part of the current decade.