Household Dynamics, Chronic Poverty and

Social Protection in Indonesia

Wenefrida Widyanti†, Asep Suryahadi, Sudarno Sumarto and Athia Yumna

The SMERU Research Institute

www.smeru.or.id

2

Outline

1. Introduction2. Data3. Poverty and Chronic Poverty in Indonesia4. Household Composition Change and Chronic Poverty5. Household Dynamics as a Protection Instrument6. Economic Viability and Chronic Poverty7. Household Dynamics and the Concept of Chronic Poverty8. Household Dynamics and Social Protection9. Conclusion

3

Introduction

A typical household usually consists of several individuals with different characteristics, including their economic capacities, which in the end determines the economic capacity of the household as a unit.

A change in household composition will affect the economic capacity and economic condition of a household and most likely entail simultaneously both positive and negative effects on a household’s economic capacity and economic condition.

The direction of causation can also go in the opposite direction. A change in the economic condition of a household can induce the household to change its household composition.

The existence of relationships between household composition and household’s economic capacity and condition indicates that household composition may play an important role in explaining why some households fall into chronic poverty (i.e. severe and persistent poverty).

4

Data

Indonesia Family Life Survey (IFLS) Data from RAND, a longitudinal household survey with a sample which is representative of about 83 percent of the Indonesian population (13 provinces in Indonesia): IFLS1 was conducted in 1993/94 by RAND in collaboration with the

Demographic Institute of the University of Indonesia (LDUI) 7,224 households (over 22,000 individuals) were interviewed.

IFLS2 was subsequently conducted in 1997 by RAND in collaboration with UCLA and LDUI 94% of IFLS1 households were relocated and re-interviewed + 878 split-off households (over 33,000 individuals) were interviewed.

IFLS3 was fielded in 2000, conducted by RAND in collaboration with the Centre for Population and Policy Studies, Gadjah Mada University (PSKK-UGM) 10,400 households (around 39,000 individuals) were interviewed.

A complete panel of 6,403 households were interviewed in IFLS1, IFLS2 and IFLS3.

5

Poverty and Chronic Poverty in Indonesia (1)

Table 1. Poverty Indicators of Panel Data Households (%)

Indicator 1993 1997 2000 Poverty headcount (P0) 23.05 14.56 15.02 Poverty gap (P1) 6.79 3.87 3.70 Poverty severity (P2) 2.92 1.56 1.37

Number of observations (N) 6,403 6,403 6,403

Source: Authors’ calculation using IFLS data

There was clear improvement in the household welfare between 1993 and 1997; however, due to the advent of an economic crisis starting in the second half of 1997, there was stagnation in household welfare between 1997 and 2000.

6

Poverty and Chronic Poverty in Indonesia (2)Table 2. Poverty Dynamics of Panel Data Households

Poverty Pattern 1993 1997 2000 Incidence (%) Always poor Poor Poor Poor 4.23

Poor Poor Not poor 4.33 Poor Not poor Poor 3.56

Twice poor

Not poor Poor Poor 2.00 9.89

Poor Not poor Not poor 10.93 Not poor Poor Not poor 4.00

Once poor

Not poor Not poor Poor 5.23 20.16

Never poor Not poor Not poor Not poor 65.72 Number of observations (N) 6,403

Source: Authors’ calculation using IFLS data Always poor + twice poor chronic poor (14.1%)

Once poor vulnerable (20.2%) Never poor non-poor (65.7%)

7

Household Composition Change and Chronic Poverty (1)

Table 3. Household Distribution by Poverty Groups across the Existence of Household Composition Change (%)

Existence of Household Composition Change

Chronic Poor Vulnerable Non-poor N

No change in composition 15.00 19.10 65.90 2,173 Experienced change in composition 13.66 20.71 65.63 4,230

Total 14.12 20.16 65,72 6,403

Source: Authors’ calculation using IFLS data

The distributions by poverty groups of both households that experienced household composition change and those that did not are similar to each other as well as to the total distribution Household composition change is not a major cause of the chronic poverty phenomenon in Indonesia

8

Household Composition Change and Chronic Poverty (2)

Table 4. Household Distribution by Poverty Groups across the Types of Household Composition Change (%)

Type of Composition Change Chronic Poor Vulnerable Non-poor N

Death of breadwinner 0.00 33.33 66.67 12 Death of other household member 15.00 15.00 70.00 20 Birth of a child 11.81 15.28 72.92 288 Divorce or separation 21.43 14.29 64.29 14 Additional working adult 14.34 20.58 65.08 1,074 Additional non-working adult 13.92 21.30 64.78 2,723 Others 5.05 22.22 72.73 99

Total 13.66 20.71 65.63 4,230

Source: Authors’ calculation using IFLS data

The distributions by poverty groups of the households which experienced household composition change by the type of the composition change that occurred are similar to the total distribution (except divorce or separation but based on a small number of observations) There is no evidence that certain types of household composition change cause a higher probability for households to be chronically poor

9

Household Dynamics as a Protection InstrumentTable 5. The Proportions of Households Having a Bad State in Previous Period among

Those which Experienced Household Composition Change (%)

Bad State in Previous Period 1997 2000 Poverty: - Poor in previous period 21.99 14.59 - Not poor in previous period 78.01 85.41

N 4,230 4,230

Unemployment: - Head unemployed in previous period 15.26 20,52 - Head employed in previous period 84.74 79,48 N 4,155 4,006 Source: Authors’ calculation using IFLS data

The proportion of bad state households among those that experienced a change in

household composition is similar to the total households There is no evidence that households change their composition to cope with poverty and unemployment.

10

Economic Viability and Chronic PovertyTable 8. Results of Ordered Probit of the Effects of Household Composition on the Probability

to be Chronic Poor or Vulnerable

Chronic Poor Vulnerable Independent Variable Coefficient Std. Error Coefficient Std. Error

Household composition:

Husband-wife with children households 0.01592 0.02367 0.01416 0.02190

Single male/father with and without children households

0.08498 0.06077 0.05223 * 0.02562

Single female without children households -0.11640 ** 0.00477 -0.21484 ** 0.00591

Single mother with children households 0.01100 0.03290 0.00901 0.02580

Other household compositions 0.06705 * 0.03200 0.04668 ** 0.01784

Household characteristics:

Number of household members 0.02383 ** 0.00188 0.02035 ** 0.00174

Dependency ratio -0.00003 0.00004 -0.00002 0.00003

Proportion of male in a household -0.00008 0.00019 -0.00007 0.00016

Proportion of adult in a household 0.03525 0.02767 0.03011 0.02368

Proportion of working household members 0.02319 * 0.01204 0.01981 * 0.01028

Proportion of household members with secondary education or higher

-0.61423 ** 0.02719 -0.52458 ** 0.03156

Note: The independent variables used in the model are based on 1993 data. ** Significant at 1% * Significant at 5%

Single female without children households have the lowest probability to be either chronically poor or vulnerable, while single father households have the highest probability to be vulnerable.

The larger the number of household members, the higher the probability a household to be chronically poor or vulnerable.

Higher proportion of household members with senior secondary or higher education reduces the probability of a household to be either chronic poor or vulnerable.

11

Household Dynamics and the Concept of Chronic Poverty

Table 9. Poverty Headcount Rates for Various Household Groups in the Data (%)

Poverty Headcount (%) Population Group

1993 1997 2000 N

First round households:

- First round households in the complete panel 23.05 14.56 15.02 6,403

- First round households visited in the second round but not visited in the third round

14.93 5.97 – 201

- First round households not visited in the second round but visited in the third round

12.07 – 10.34 232

- First round households not visited in the second and third rounds 10.00 – – 300

- Total first round households 21.92 (N=7,136)

14.29 (N=6,604)

14.86 (N=6,635) 7,136

Second round households: - New households in the second round visited in the third round – 8.94 11.91 705

- New households in the second round not visited in the third round – 13.39 – 224

- Total second round households – 10.01 (N=929)

11.91 (N=705) 929

Third Round Households:

- New households in the third round – – 9.30 2,818

All Households in the Data 21.92 (N=7,136)

13.77 (N=7,533)

13.11 (N=10,158) 10,883

Source: Authors’ calculation using IFLS data

The complete panel households are poorer than the total sample in each round: The households dropped

out of sample are less poor

The new households added into sample are less poor

The use of household as the unit of analysis for poverty may undermine the conceptualisation & measurement of chronic poverty.

12

Household Dynamics and Social Protection

Poverty status in general does not increase the probability of receiving assistance, except for the vulnerable in receiving basic need assistance.

Change in household composition does not increase the probability of receiving assistance either.

Table 12. Results of probit analysis of household participation in government social protection programmes in 2000 (%)

Basic needs assistance Other assistances Independent variable

Coefficient Std. Error Coefficient Std. Error

Poverty status:

Chronically poor 0.33698 0.22719 0.12199 0.42655

Vulnerable 0.29597 ** 0.10773 -0.02686 0.20418

Poor in 1993 0.03295 0.10902 -0.13284 0.20336

Poor in 1997 -0.06977 0.10596 -0.08762 0.20563

Poor in 2000 0.12706 0.10269 -0.09073 0.19605

Change in household composition:

Change in household composition 1993-1997 0.07934 0.04978 0.07779 0.08664

Change in household composition 1997-2000 0.01345 0.04076 -0.00663 0.07303

Household characteristics:

13

Conclusion (1)

Household composition change is not a major cause of the chronic poverty phenomenon in Indonesia.

There is no evidence that certain types of household composition change cause a higher probability for households to be chronically poor.

There is no evidence that households change their composition to cope with poverty as well as unemployment.

Husband-wife households have the highest probability to be non-poor, while single mother households have a higher probability to be non-poor than single father households.

14

Conclusion (2)

The larger the number of household members, the higher the probability a household to be chronically poor or vulnerable.

A higher proportion of household members with senior secondary or higher education reduces the probability of a household to be either chronic poor or vulnerable.

Because of household dynamics, the use of household as the unit of analysis for poverty could undermine the conceptualisation & measurement of chronic poverty.

Poverty status and change in household composition in general do not increase the probability of a household to receive an assistance.

15