Economics: Employment in the manufacturing industry in the Republic has fallen in the past few years. Depending on which statistical series you look at - the Central Statistics Office's Quarterly National Household Survey or its separately published quarterly series on industrial employment - the decline between 2001 and 2004 was either 5 per cent or 11 per cent.

In other words, somewhere between 15,000 and 30,000 jobs were lost on a net basis. The contrast with the 1990s is fairly stark. Between 1993 and 2001, the number of people engaged in manufacturing increased by almost 30 per cent. As the numbers employed in manufacturing have declined, so too has the sector's share of total employment. Last year, manufacturing industry accounted for just 15 per cent of total employment in the Irish economy. In 2001, that proportion was over 17 per cent.

Should we be worried by the apparent decline in manufacturing? Well, the first thing to recognise is that what's been happening in the State has been happening elsewhere.

Throughout the developed world, manufacturing industry has been contracting as a source of jobs - for a lot longer than has been the case here - and most forecasts see this process continuing into the future.

As for the share of manufacturing in total employment, it is now less than 12 per cent in the US and about 14 per cent in the UK. Within 10 years, it is quite conceivable that fewer than one in every 10 people employed will be engaged in manufacturing in what used to be called the "industrialised countries". Manufacturing, it seems, is going the way of agriculture.

Another important point to make is that, while manufacturing employment is declining, manufacturing output continues to rise. Since 2001, the volume of manufacturing output in the Republic has increased by more than 4 per cent per annum. The reason why this has happened in the face of falling employment in the sector is that workers in manufacturing have been becoming more productive - at a rate of about 8 per cent each year.

To be honest, there are reasons to be suspicious about how meaningful these Irish numbers are. However, the pattern of productivity growth more than offsetting employment declines and resulting in overall output growth is a pattern common to the manufacturing industry across the developed world.

In light of the commonality of our experience with other developed countries, the question of whether we should worry about the decline of manufacturing employment may usefully be broken into two questions.

One, should developed countries in general worry about this trend? Two, has the Republic any particular reasons to worry? I'm not going to say anything further about the first of these questions today. Instead, I'm going to concentrate the rest of my remarks on the second question.

I pointed out above that manufacturing output has continued to increase in the State since 2001, despite falling employment. However, the rate of increase, at just over 4 per cent per annum, is not much more than a quarter of the rate of output growth achieved by the sector between 1993 and 2001.

Not surprisingly, given the very high proportion of manufacturing output that is exported, the periods before and after 2001 are also sharply differentiated in terms of merchandise exports. Between 1993 and 2001, merchandise export volumes increased at an annual average rate of more than 15 per cent; since 2001, the equivalent rate of growth has been 1 per cent.

For people accustomed to thinking of the Republic as a small, open economy where long-term growth is driven by exports, which in turn are driven mainly by manufacturing industry, what has been happening since 2001 is a little perplexing and not very comforting. The economy's traditional locomotive, it seems, has suffered a dramatic loss of power. If it doesn't recover, how can we hope to sustain the kind of overall growth rates we aspire to into the future?

Well, it is true that the economy's traditional locomotive has run out of steam for now (it may also be the case, incidentally, that we exaggerated its power and importance during the 1990s, and that's an interesting story in its own right). But economic activity has been growing at a brisk tempo despite this, which can only mean that a replacement locomotive has been found. And that replacement has come in the shape of the construction sector, where output and employment have been expanding at spectacular rates in recent years.

Of course, this cannot continue indefinitely. There is a limit to the number of houses we want and the amount of infrastructure we need. So, the pace of growth in construction must inevitably slow down, and probably sooner rather than later.

When the construction sector slows, what area of activity might pick up pace? Some analysts are pinning their hopes on consumer spending on the grounds that the maturation of the SSIAs in 2006 and 2007 will liquidate a large slice of household wealth and provide people with the readies to fund a major spending spree. They may be right (I'm a little sceptical myself), but if they are, whatever boost to output ensues will be short-lived. At the end of the day, it is hard to escape the logic of the proposition that the critical determinant of long-term growth in a small economy such as the Republic is the size of its export base. Of course, there is plenty of scope for speculation about the composition of that export base. Over the past decade or so, it has been dominated by companies producing stuff such as food, pharmaceuticals and machinery.

A couple of decades from now, it may be dominated by companies producing education, financial services and business consultancy. What matters is whether the firms concerned can compete and survive. What doesn't matter much is whether the activity they are engaged in is classified as manufacturing or services.

Speaking of classification, there is apparently a move in the US to recategorise workers in McDonald's restaurants as manufacturing workers on the grounds that they are using their hands to put together Happy Meals in an assembly line set-up!

Jim O'Leary is currently lecturing in economics at NUI Maynooth. He can be contacted at jim.oleary@nuim.ie