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This study analyzes new co-innovative sources of labor productivity (i.e., ICT use, human capital and training, and new forms of work organization) in small firms that produce for local markets. The study presents an application of structural equation modeling (SEM) to 2009 survey data for a representative sample of 464 SMEs in the province of Girona (Spain). Results show that wage is the main determinant of labor productivity. Furthermore, in contrast to evidence regarding larger firms, co-innovation does not directly affect small local firms' productivity. The study establishes an indirect relationship between co-innovation and productivity in firms that initiate international expansion. The study also identifies guidelines for public policy to improve productivity in small local firms.