Breaking down poverty: Livelihood assets’ impact on Indonesian livelihood strategies

Understanding household livelihoods is essential for poverty reduction. A major obstacle in analyzing livelihood quality lies in the quantitative investigation of household livelihood assets, livelihood strategies, and their mobility. This study investigated how livelihood assets affect livelihood strategy choices and their mobility in Indonesia using longitudinal data. Drawing on panel data from the Indonesian Family Life Survey 2007 and 2014, supplemented by Pendataan Potensi Desa, this analysis covered 11,511 households. Principal component analysis identified five livelihood asset dimensions (human, social, financial, physical, and natural capital), whereas cluster analysis classified households into three livelihood strategies: business and self-employment, wage labor, and agriculture. Multinomial logit and ordered logit models assessed the influence of livelihood assets on livelihood strategy selection and mobility. Results indicate that 40.18% of households adjusted their strategies, with a notable shift from wage labor to business and self-employment. Business and self-employment were the highest income-generating strategies (averaging IDR 1.17 million per capita in 2014), whereas agriculture was the least remunerative (roughly half the sample mean). Households with higher human capital tended to adopt business and self-employment, those with higher social capital were more likely to choose agriculture, and household with robust physical and social capital leaned toward wage labor. Furthermore, higher human and financial capital facilitated upward mobility into more remunerative strategies. Therefore, policy interventions aimed at improving livelihoods should enhance human, financial, social, and physical assets to facilitate more remunerative strategies to reduce poverty.