The hotel, restaurant, retail and wholesale sectors will have to invest more heavily in training as they will no longer be able to rely on a pool of highly-educated graduates, the ESRI has said.

Against a background of high unemployment, the services sector has in recent years been content to select off the top of the queue of job applicants, it said. But a tighter labour market is already threatening this strategy and it is likely to become even less viable as the number of school leavers starts to decline, according to the Economic and Social Research Institute.

It stated the sector, which has been complaining about skills shortages and trouble in recruiting suitable candidates, has been reluctant to invest in training and has instead become overly dependent on "overqualified" temporary and part-time labour.

The industry has also relied on older married women returning to the workforce for recruits, Dr Damian Hannan, one of the authors of the report, said. But he warned that this source of recruitment was also under threat as the proportion of younger married women remaining in the workforce increased.

The ESRI said a rapid expansion of apprenticeships and trainee schemes was now needed as the industry will have to look at taking on younger and less skilled people and training these recruits themselves. However, some employers were trying to replace highly-educated Irish employees with recruits from overseas. This strategy would leave the state with a persistent, serious unemployment problem for the least educationally qualified and leave them with few occupational goals to aim for, he said.