Labor saving innovations are essential to increase agricultural productivity, but they might also increase inequality through displacing labor. Empirical evidence on such labor displacements is limited. This study uses representative data at local and national scales to analyze labor market effects of the expansion of oil palm among smallholder farmers in Indonesia. Oil palm is labor-saving in the sense that it requires much less labor per unit of land than alternative crops.

Smallholder farmers in developing countries often suffer from high risk and limited market access. Contract farming may improve the situation under certain conditions. Several studies analyzed effects of contracts on smallholder productivity and income with mixed results. Most existing studies focused on one particular contract scheme. Contract characteristics rarely differ within one scheme, so little is known about how different contract characteristics may influence the benefits for smallholders.