The average living standards of a people are ultimately a function of two factors: first, how much the average worker produces, enhancing whatever resources are put at his disposal; and, second, the numbers of dependants he or she has to support, writes Garret FitzGerald.
Of course, at the margin, some other factors may come into play, like transfers of resources through channels such as development aid or the EU budget, or in some cases by way of emigrants' remittances.
But, by and large, living standards depend upon a combination of national labour productivity and dependency ratios. The fact that in 1989 Ireland was about 40 per cent poorer than the rest of western Europe was due to a negative combination of these two factors.
Up to then, about half of our problem was the fact that the value of output per worker in Ireland was 20 per cent lower than elsewhere in the EU.
The other half of the shortfall reflected the fact that our dependency ratio was then a good deal higher than elsewhere in Europe: quite simply, too small a proportion of our population was actually engaged in paid work.
The fact that we have since caught up with our neighbours is because - once again in roughly equal measure - a substantial rise in output per worker, i.e. labour productivity (much of it due to foreign industrial investment having endowed us with a substantial volume of high-tech industry), was combined with a 50 per cent increase in the proportion of our population at work, a point to which the Taoiseach rightly gave emphasis in his speech to the IMI yesterday.
The average worker, who in 1989 had to produce the resources required to support, directly or indirectly, something more than two dependants, today has little more than half that number to look after.
Because of these two linked developments we have now bridged a historic gap between ourselves and our neighbours in western Europe, and we have done so at a pace which does not seem to have had any precedent in our continent's history.
Can we expect this process to continue in the new century? Certainly not at the same pace as in the 1990s. During the past five years - three years of slower growth and two of recovery - output per worker has on average grown at less than half of the Celtic Tiger rate.
And, while the decline in our dependency rate has continued, it has been proceeding at a rate much less than half that experienced during the 1990s. Indeed, since the end of the 1990s a 300,000 decline in the number of dependants has been reversed: the number has actually climbed by over 100,000 since the year 2000.
However, this reversal has been accompanied by a virtual trebling of the overall rate of growth of our population, which has recently been rising by 65,000 a year and may indeed have increased by 80,000 or more during the past 12 months, viz by as much as 2 per cent within a short 12-month period.
(In the course of the year 2004 employment jumped by 64,000, and there has probably been a further increase of at least 15,000 in the number of dependants in our population.)
In the 1990s every aspect of our domestic labour supply was growing rapidly. Because our birth-rate rose throughout the 1970s, the flow from the educational system in the 1990s was three-fifths greater, in proportion to the size of our workforce, than in the rest of western Europe. The flow of women from work in the home to paid work was then also much greater than elsewhere in Europe.
There was large-scale movement from unemployment into work, which alone added one-eighth to the workforce. Finally, many Irish emigrants of the late 1980s returned home during that decade.
But around the turn of the century these indigenous sources of employment began to dry up more or less simultaneously so that, in order to supply even the somewhat reduced employment needs of the early years of the new century, we had to start for the first time pulling in immigrant labour both from Europe and elsewhere.
With last year's recovery in the economy, the scale of our immigrant labour needs rose quite sharply, happily coinciding with the opening up of new sources of labour in eastern Europe, most notably Poland, Lithuania and Latvia. So something like two-thirds of our increased employment needs are currently being provided by immigrants.
As it happens, the inflow of asylum-seekers has simultaneously fallen by three-fifths, so that these now account for only a very small share - less than 10 per cent - of current immigration. These are dramatic demographic changes, the scale and speed of which have no precedent anywhere else in Europe.
It may be of interest to look even more closely at what we now know of the trends of output and employment during the year 2004. The best measure of our economy's performance last year is provided by the quarterly output data published by the CSO.
The volume of our GNP is there shown as having risen by 5.5 per cent in 2004. But this increase required an input of 3 per cent more labour, so output per head would appear to have risen by only 2.5 per cent in that 12 months.
Even that small increase in labour productivity has a question-mark about it, because productivity increased only in agriculture and in the distribution, transport and communications sectors. Indeed, in the services sector, output per worker is shown as having actually fallen by almost 1 per cent last year.
Two-fifths of the increase in output per worker is actually shown as having been accounted for by a sharp increase in what the CSO describes as a "statistical discrepancy", so that only an increase of 1.5 per cent was accounted for by recorded improvements in sectoral labour productivity.
As was pointed out at the start, in the long run improvements in living standards are a function of a combination of labour productivity and changes in the dependency ratio. As we have begun to move from an industry-based economy to one based mainly on the more labour-intensive services sector, labour productivity has begun to rise much more slowly, and the same is true of the dependency ratio - a decline in which now accounts for a much smaller improvement in labour productivity than was the case in the previous decade.
Thus, whatever short-term prospects may exist for a more rapid rise in living standards because of one-off events, such as the release in 2006 and 2007 of SSIA savings, the prospects of living standards rising rapidly are not so good in the medium term.