The third determinant is called “total factor productivity,” or TFP, which refers to the ability of firms to produce more efficiently given the first two inputs. For example, as businesses learned how to incorporate advances in information technology into their production processes, there was a surge of productivity growth from roughly 1995 to 2005.
The weak performance of productivity since the crisis appears to stem mainly from weak business investment and low TFP growth. Weak business investment has resulted from weak demand and uncertainty about the pace of the recovery. TFP is equally important and has generally accounted for most of the variation in productivity over time, but is less well understood and so more difficult to forecast.