Synergy and Learning Effects of Informal Labor-Sharing Arrangements

We study the effects of informal labor-sharing arrangements and other social interactions on farmers' productivity in a developing country context, testing whether these types of social and work interactions lead to productivity gains through learning, synergy, or both. Using a rich panel data set of Ethiopian subsistence farmers, we estimate a distance function of grains production and find large productivity gains (approximately 33% and 29% in 1999 and 2004) from labor sharing due to synergy effects that boost labor productivity. However, labor sharing does not lead to learning as the productivity gains observed in years with labor sharing disappear in following years if the farmers do not continue to engage in labor sharing. Labor-sharing partners are either neighbors, relatives, members of the same funeral and religious associations, or have plots next to each other, which together reduce labor sharing as a single venue for learning. However, the synergy effect is strong enough to warrant the design of extension and outreach policies that recognize and utilize farmers' informal social networks such as labor-sharing arrangements.