Better education and more competition are needed in the economy to improve flagging productivity in the services sector.

That was the key message emerging from the Forfás conference on productivity and public policy in Farmleigh House yesterday.

Addressing the conference, Minister for Enterprise, Trade and Employment, Micheál Martin, said low productivity in the services sector was a special concern, given its growing importance in creating jobs.

"This sector employs about two out of three people at work, but productivity in this domain in Europe tends to be lower than in the US," said Mr Martin.

Productivity is defined as the value of output per hour worked. Recent economic forecasts suggest productivity growth is weakening significantly, with economic growth being driven by employment growth in low productivity sectors of the economy such as construction.

The conference coincided with the launch of an in-depth study of Irish productivity by leading economist Paul Tansey, commissioned by Microsoft Ireland.

As jobs growth declines, there is an increasing need to focus on productivity if economic growth is to be sustained, the report says.

Welcoming its publication, Microsoft Ireland managing director Joe Macri said that, while overall productivity growth had been impressive, this was driven by multinational activity in Ireland.

He said Government productivity policy needed to become more targeted.

"It's great that the multinationals are here, but when looking at policy decisions, there is a need for the Government to focus on the needs of the indigenous sector," said Mr Macri.

Professor Eric Bartelsmann of the Dutch Tinbergen Institute said information technology could lead to productivity gains for the economy, but this would require changes in human resource policies.

Government policies to help workers retrain could minimise the employment fallout of technology.