[2334] Sabah, immigration and unemployment

There is a popular allegation that illegal immigration, or even immigration as a whole, is the culprit behind the level of unemployment Sabah is experiencing. I am unsure how accurate that is.

First of all, while the unemployment rate of Malaysia nationwide was about 3.6% in 2009, the unemployment rate in Sabah was 5.5%. The difference is not too big.

Secondly, I think the allegation is mostly due to bias against immigrants in Sabah. Immigrants are simply easy scapegoats.

I recently came across statistics pertaining the labor market of Sabah. Here is a simple graphical representation of the behavior of labor force size and unemployment rate from 1982 to 2009.

The labor force is measured in thousands.

Here is a graph with change in labor force instead of just labor force size.

Note what happens to the unemployment rate each time there is a spike in change of the labor force.

The only edit I did to the data was to fill in two data points into the series, which are absent from the original dataset. The edit is innocent: I took the average of the year before and after for the missing points, which are year 1991 and year 1994.  The data is publicly available at the Department of Statistics.^[1]

I drew the particular period because those are the years available in the document. There are not too many data points to play with.

I admit that that is unscientific but the graph shows that the increase in labor force corresponds with a noticeable drop in the unemployment rate. Something happened there. Was it the roaring nineties? Maybe but I really do not know.

The increase in labor for is likely due to immigration (legal immigration, by definition, I would guess). It is highly unlikely the nearly 300,000 or 35%  increase in labor force between 1995 and 1996 was due to natural factors. It was likely due to increase in immigration. There has been allegation that immigrants were granted citizenship status liberally in Sabah. This might be a smoking gun.

In that way, I am using the change in labor force as a very imperfect proxy. Nevertheless, I think the change in labor force is a somewhat good proxy. A sudden change is likely to be caused by immigration, given the history of Sabah.

I ran a simple regression just to see if preliminary results (i.e. no cointegration tests although the model did pass a structural test; simple reading of the results also suggests that there relationship is not spurious but residuals are not normally distributed) would go against the conclusion one would get from the graph above.

I found a significant relationship between the labor force and the unemployment rate: An increase in labor size reduces unemployment rate. Through the proxy I mentioned, the conclusion might be that immigration reduces unemployment rate, on average given all else constant.

One reason this might be true is that there are more economic activities with larger working population. I do not think that is controversial at all.

So, it does not support the allegation that immigration adversely affects the unemployment rate in Sabah. I would assume that the conclusion would hold for illegal immigration.

A better model would probably include the periods of economic expansion and recession as well as the GDP in one way or another. Having actual number of immigrants would be great. Looking for the GDP of Sabah up to 1982 might a little bit time consuming for a blog entry. If any of you have it, do send it my way. I might do a more kosher regression model with it.

Of course, it is quite possible that the relationship is reversed but again, given the history of Sabah where massive immigration was welcomed due to political consideration, I think this is more of a case where immigration affecting unemployment rate.

^[1] — see Principal statistics of the labour force, Sabah, 1982-2009 by the Department of Statistics Malaysia.