Businesses believe that pay hikes for public sector workers will have a negative impact, as one-in-four claim they are unable to offer their own employees similar increments.
Just 61pc of the 400 businesses surveyed by business group Ibec said they will be in a position to offer employees pay increases, of an average of 2pc this year.
Danny McCoy, CEO of the lobby group, said that "across the board pay awards" that were granted recently in the new Lansdowne Road Agreement, puts the public sector "at odds with the reality of the private sector". Mr Coy believes this move will lead to "unrealistic wage expectation in areas of the private sector that remain under severe pressure".
"The new pay agreement also allows very little flexibility to adjust pay rates in particular areas of the public sector where skills shortages are leading to severe recruitment and retention problems. The approach should have been more responsive to wider labour market trends," Mr McCoy said.
"Despite positive economic news, the number of private sector employers in a position to award pay increases this year has not changed since last November... Certain sectors and parts of the country are still struggling and many companies remain in survival mode."
The Ibec boss said the "recovery cannot be taken for granted", even though the country has returned to a "solid growth path". Mr McCoy also said that the "pay awards" hinders the recruitment of new staff and public investment, and that the Government should "move to further reduce the punitive marginal tax rate".
The organisation has admitted it is particularly concerned about the "overly restrictive rules" which have been put in place for outsourcing.
"The move will insulate the public sector from the healthy pressures of competition and act as a barrier to change and reform," added Ibec.