GDP growth can be decomposed into two main parts: labor input growth and labor productivity growth. Labor input includes the size of the working population and how much they work—both affected by demographics, migration, and social norms. Labor force participation also shifts with wealth, wages, and policies.
Productivity growth comes from more capital per worker (capital deepening) and from gains in total factor productivity (TFP)—often linked to technology and efficiency improvements. TFP captures output growth not explained by labor or capital.
This breakdown helps forecasters by offering stable components in mature economies, making it easier to project future growth based on past trends. In developing economies, where structural changes are common, the same model applies but requires more adjustment based on current shifts.