Workers will have to accept significantly reduced pay increases when new national pay talks begin shortly, the employers body, IBEC, said yesterday.
Its view was immediately dismissed as "nonsense" by the State's biggest union, SIPTU, which said workers would have to be compensated for Ireland's high cost of living.
Talks between unions, employers and the Government on pay rates are scheduled to begin formally at the end of the month.
A deal would cover the second 18 months of the three-year social partnership agreement, Sustaining Progress, which came into effect last year.
Because of uncertainty at the time over the economic situation, it was decided to set pay increases for the first 18 months of the agreement only.
Employers now believe the increase agreed then, 7 per cent in three phases, was too high given that inflation fell significantly since the deal was signed.
IBEC director general Mr Turlough O'Sullivan said yesterday that in effect the pay increases under Sustaining Progress were "significantly front-loaded".
He declined to say what level of increase employers would propose. He pointed out that inflation at the time of the last talks was at 5 to 6 per cent, whereas it was now running at 1.7 per cent.
"Business leaders are very worried about our lost competitiveness, caused by ever-tightening margins and cost currency pressures. They believe the focus must be on protecting jobs."
Mr O'Sullivan said workers in Ireland had received a cumulative pay increase of 30.3 per cent in the years 2000 to 2003, compared to a euro area increase of 11.6 per cent.
This had contributed to a loss of competitiveness, which had seen Ireland fall from fourth to 30th place in the past three years in the World Economic Forum's competitive league table.
However, SIPTU president Mr Jack O'Connor said there was "a lot of nonsense coming from employers" in relation to the pay talks. IBEC's own calculations predicted that GNP would grow this year by 3.4 per cent, accelerating to growth of 3.7 per cent next year. In circumstances where the cost of living in Ireland was among the highest in Europe, "to be suggesting that workers should not gain a fair share ... from a rising rate of economic growth is utter nonsense," Mr O'Connor said.