We couldn't have done it without them

Economics: Ireland is a richer, brasher, brassier place than it was a quarter of a century ago. It is also more populous, writes Paul Tansey.

The 1981 census enumerated the population at 3.443 million. Twenty-five years later, the 2006 census counted 4.24 million residents in the State. Thus, between 1981 and 2006, the population increased by almost 800,000 people or by 23 per cent, an annual average population growth rate of close on 1 per cent.

During this period, the Irish economy finally became airborne, achieving an economic take-off in the early 1990s and maintaining economic altitude thereafter. By 2006, the Irish economy, measured by trends in real gross domestic product (GDP), was 3½ times as big as in 1981. Population growth has been both a cause and a consequence of the boom.

The population has not only risen rapidly over the past 25 years, but its composition has changed fundamentally. Compared to 1981, there are now fewer young people and slightly more older people but the defining characteristic of Irish population change has been a pronounced bulge in the population of working age. Ireland's population is showing signs of developing a middle-aged spread.

The working age population - those between 15 and 64 years of age - has risen from 2 million in 1981 to 2.9 million in 2006, an increase of 43 per cent. Thus, over the past quarter of a century, the population of working age has grown almost twice as fast as the 23 per cent increase in the overall population.

This concentration of population growth into the cohorts of working age has aided economic growth and underpinned rising living standards in two distinct ways.

First, in simple terms, economic growth is the result of productivity growth - increases in output per worker - plus employment growth. Other things being equal, the capacity to add to employment depends on the underlying growth in the labour force.

In turn, labour force growth is dictated by three factors: the expansion in the domestic population of working age; changes in labour force participation rates and migration flows into the labour force from abroad.

With the working age population and participation rates both rising swiftly, there was an ample supply of labour available as the economy picked up speed. Rarely in recent times has Irish economic growth been constrained by a scarcity of labour, and when bottlenecks did begin to occur in the labour supply, as in 2000, they were quickly relieved by the recruitment of a reserve army of immigrant workers.

The role of immigrant workers in ensuring the continuance of the Irish boom since 2000 requires reiteration. By 2006, one in eight workers in the State was a foreign national. There are now almost a quarter of a million foreign nationals in the Irish workforce. In their absence, the Irish growth story would be considerably shorter. The economy would have run out of domestic workers and this would have called time on the boom.

Second, labour is more than a technical input into the growth process. The real dividends of economic growth are denominated in the employment generated, the incomes created and the living standards enhanced for individuals and households across the State. In these terms, the pay-offs have been handsome. Employment has risen by about 900,000 in Ireland over the past quarter of a century, with some 700,000 of these jobs being added to the national workforce over the past decade.

Changing demographics have strengthened the income gains delivered by rising levels of employment. Between 1981 and 2006, the numbers aged under 15 years declined by 180,000 and their share of the national population fell from 30 per cent to 20 per cent.

At the other end of the age distribution, the numbers aged 65 years and over have risen by just 100,000 over the past 25 years but their share of the total population has remained virtually unchanged. The numbers in the older age cohorts have been depleted by successive waves of emigration dating back to the 1950s.

In total, the dependent population - those aged under 15 and over 65 - have declined from two in five of the population in 1981 to three in 10 of the population by 2006. In other words, the demographic dependency rate has fallen sharply. Taken together with the steep rise in employment, this has caused a major decline in the economic dependency rate.

The results can be succinctly summarised: for every person at work in Ireland in 1981, there were two economically inactive dependants.

By 2006, for every person at work in Ireland, there was just over one dependent. Thus, the advances in living standards caused by rising employment have been turbo-charged by the very marked decline in economic dependency rates.