DUBLIN -- What a difference a year makes.

Until this year, the impossibility of finding a parking space at any of the slew of high-tech industrial parks that ring Ireland's capital city was a well-worn yarn.

Now, one can choose from both parking and gleaming new office space as the high-tech slowdown has hit hard.

With the economy heavily dependent on foreign direct investment, which is now collapsing, Ireland must reinvent itself as a high-wage, high-skill, high value-added economy, for it can no longer compete with Eastern Europe and other low-wage manufacturing areas for low-grade work such as product assembly.

The last five years show how Ireland is changing. Although wages have risen by nearly 50% since 1995, unit labor costs have come down through massive efficiency gains. Productivity has more than doubled in the period.

"We must now move quickly to the innovation stage," said Sean Dorgan, chief executive at the Industrial Development Agency of Ireland, who puts a premium on high-level skills and expertise along with high-quality infrastructure and business services.

Mr. Dorgan said that the "transformation to being innovation-driven won't be instant but it'll need to progress quickly so that we're recognizably different, yet again, by 2010."

Ireland has been punching above its weight class in foreign direct investment for the last decade, winning 23% of all multinational investment into the European Union. In years past, the investment sparked a plethora of new job creation, lifting growth levels to double-digit figures at its peak.

Now, growth forecasts suggest a sharp contraction to about 2% next year, and that is only if the U.S. economy gets back on its feet.

"The flip side is overdependency," said Niall Dunne, financial markets analyst at Ulster Bank in Dublin. "It could be argued that the Irish economy has become overdependent on multinationals and if you believe in economic cyclicality, then we're more subject than most to those economic cycles."

Irish workers are rediscovering the unemployment line. The government says the industrial sector is shedding 325 jobs a week; at this rate, all 23,000 jobs created in the past eight years will be wiped out by Christmas.

"We're hemorrhaging jobs at an alarming rate," said Austin Hughes, chief economist at IIB Bank in Dublin.

Davy Stockbrokers' economist Robbie Kelleher predicts a 6% jobless rate next year, compared with 3% unemployment for the past couple of years -- the level most economists see as full employment for Ireland.

Brendan Butler, chairman of information technology trade body ICT Ireland, said Ireland is no longer a low-cost economy attracting new business.

"We're a moderate to expensive wage country," he said. "We've got to move up the value chain and invest in strategic research and development and we're not doing that at present."

Eastern Europe makes the Irish minimum wage of $6.25 an hour seem stratospheric. Nor can it compete with countries such as Mexico, where the government is pitching hard for a slice of investment from software and information-technology companies. Workers there get an average hourly rate of $1.47.

In line with Ireland's coming of age as an industrial nation, European Union tax concessions will be swept away next year.

In 1987, before the boom, the country struck a deal with Brussels allowing the government to levy a rate of just 10% corporation tax for qualifying foreign companies. The deal runs out next year, when all companies will be on a 12.5% scale. But this is still less than half the rate in the United Kingdom and only a third of what companies pay in Germany and France.

In itself, therefore, the tax change shouldn't impact on investment decisions -- but with the country soon having to compete for foreign direct investment against Central and Eastern European countries where there is low or no corporation tax, the government will find itself on the back foot in the fight for investment dollars.

The government can't become complacent that Ireland is always going to have a high level of investment, said Karina Howley, media relations manager at IT heavyweight Intel Ireland, whose U.S. parent last month projected soft revenue growth and disappointing gross profit margins for the fourth quarter, despite a sharp jump in third-quarter earnings.

Intel, in Ireland since 1990, employs more than 4,000 people at its Leixlip plant outside Dublin and has become one of the country's largest private-sector employers.

Ms. Howley says Intel is a long-term player in Ireland. An imprecise mix of incentives and skill sets is what attracts the company to the country.

"Where we sell ourselves is in brain power and Intel believes Irish employees are the best in the world," she says. "I don't want to dismiss the fact that good infrastructure and inputs are also needed, but the work force for us is essential."