The Government has succeeded in keeping unemployment low despite rising unemployment benefit, a study published yesterday by the Economic and Social Research Institute (ESRI) has shown.

But it warns that unemployment might yet rise strongly. According to the ESRI study, Work Incentives, Poverty and Welfare in Ireland, the higher attractiveness of remaining on unemployment benefit has been countered by both the provision of job search supports as well as a tougher approach to those not seeking employment.

Though still lower than in the early 1990s, the study finds that the ratio of net family income when unemployed to net family income when employed rose significantly between 2000 and 2005.

The so-called replacement rate for a couple with two children rose from 45.3 per cent in 2000 to 49.9 per cent in 2005.

But the unemployment rate rose only slightly over the period, from a rate of 3.6 per cent in May 2000 to around 4.5 per cent this year.

"Recent budgets have raised the lowest possible welfare payments faster than net earnings, but unemployment rates have been stable," Prof Tim Callan said yesterday.

He added that higher welfare provision made it more necessary for the Government to assist the unemployed in seeking employment. "Unemployment rates were raised in the last couple of budgets. In order for that to work - as in Scandinavian countries - we need a broad framework that ensures the payments are consistent with job search."

Although lower than in Scandinavian countries, Irish unemployment benefit is now significantly higher than in the UK. "It would be stretching a point to say we're in the Scandinavian box, but it's clear that we're on the border," he said.

In an effort to reduce unemployment, Minister for Social and Family Affairs Séamus Brennan and Minister for Enterprise Micheál Martin earlier this month announced that the time after which welfare recipients must start looking for a job would halve from six to three months.

Prof Callan welcomed the move as being consistent with best practice but said it was unlikely to reduce unemployment significantly. "Unemployment is already so low that the scope for that to have an effect is limited."

He added a warning that unemployment remained low partly because of increases in construction employment and "the ability of new structures to deal with a serious cyclical downturn in Ireland are as yet untested".