Total factor productivity attempts to capture the other, less tangible influences on long-term economic growth, which work in tandem with other more measurable inputs such as capital and labour.
Obviously, if you increase the amount of capital or labour deployed in an economy, you should expect output to rise. Indeed, one of the key reasons why the UK economy has performed well in recent years is because of inward migration. But total factor productivity is the variable that captures how much value these extra inputs add to the economy – how productive they are. Unfortunately, a key problem for most western economies in recent years has been that productivity has been falling.