The availability of basic assets influences peasants- economic behavior, their livelihood diversification strategies and their responses to land degradation. In addition, when pressed by economic hardships households can also expected to work more than better off ones. Whether this implies more or less on- or off-farm labor supply is an empirical question. This in turn can have an asymmetric effect on poverty traps and the extent of forest clearing under slash-and-burn farming. This paper examines the determinants of labor allocation among forest based shifting cultivating households in two communities from Yucatan (Mexico). The effects of wage rates and structural socio-economic factors are tested for both farming household heads and other family members and their implications discussed. While the former seems to be bound by structural factors, the latter are very sensitive to labor market signals and show a negative elasticity to off-farm labor supply. This calls for providing specialized training and education programs to increase human and social capital for household heads in order to reduce pressure on forest land and to assist households to avoid poverty traps arising from the predicted falling wage rates due to post-NAFTA liberalization of rural labor markets.