Categories
Economics

[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.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

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

Categories
Economics

[2333] A story that is likelier better than deposits battle narrative

I had some trouble reading an article on the front page of the business section of The Star dated today. The headline “Battle for deposits” roars to tell the world that Malaysian banks are in the battlefield sword in hand fighting for deposits, especially for current accounts.[1] I find the whole idea somehow unconvincing. I could not quite finger it but there was something definitely missing from the picture. I wanted to roar back and so I gave it a thought. And I think I have got it.

The article reasons that with the overnight policy rate increasing, these deposits offer cheap source of financing for banks. It sounds fine until one asks, why are the owners of funds putting their cash in low yielding accounts? Hmm…

That is a far more interesting issue at hand than the alleged battle for deposits. I will come back to this.

But first, I did some calculation after mining the relevant data from BNM just to satisfy this weird curiosity of mine. Compare the graphics produced by The Star…

…with this longer period time series that I produced using the same data:

As you can see, the rate 11% is rather typical for the past 10 years for deposits in current accounts. Annual growth rate between 2001 and 2010 is close to 13%. So I am wondering if the proof of 11% offered is any proof at all.

Maybe, there is a battle for deposits. Maybe, there is less wealth around and so these banks have to work harder than usual, thus the battle for deposits. Maybe but I am skeptical of it. Even if it is true, like I said, there is a more interesting issue at hand.

Another point that does not run parallel with the deposits war story is the drop in savings deposit growth rate. The average annual growth rate for savings deposits is 8%. If 11% annual growth rate of deposits in current accounts that is really around average paints the picture of a battle, what about 3% rate for savings that is well below average?

I have a more interesting and a likely more consistent story to tell.

I think the whole issue is a symptom of economic recovery. It might be an affirmation of economic recovery.

The continuing growth of deposits in current accounts suggests that there are more transactions going on. The drop in savings deposit suggests that individuals and companies might be using the money or putting it somewhere else with better returns rather than keeping it relatively idle. Companies might have purchased more supplies for sales or invested more, while individuals might have gone spending somewhere. More spending, less saving.

What adds to the plausibility of the story is that in 2008, growth rate of deposits in current accounts slowed. The recent financial crisis began in 2007 while the full realization that we were in trouble only became clear in 2008. That hit confidence and many began to hoard money. That meant harder business environment and less transactions. Since current accounts are typically used for business transactions, deposits in current accounts should not grow too big, or should even shrink. Look at the growth rate in 2008: 6% compared to 23% the year before and 11% the year after.

Here are a few things that may strengthen the story further. One, increasing sales and investment figures for companies. Two, increasing private consumption for individuals. Three, higher velocity of money.

Anybody wants to check that? I am going to bed.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — PETALING JAYA: Banks are engaged in a war for deposits, especially for current accounts, in their drive to build up low-cost deposits as a means of cheaper funding.

“Demand deposits (current account), which were relatively much cheaper than fixed and savings deposits, had been marking a strong year-on-year (y-o-y) growth of about 11% from 2008 to 2010,” RAM Ratings head of financial institution ratings Promod Dass told StarBiz.

”This clearly indicates the drive among banks to build up low-cost deposits for access to cheaper cost of funds. This active strategy of promoting current accounts usually involves corporate clients who utilise the service for their businesses,” he said.

According to Dass, this was in line with the increasing overnight policy rate (OPR) where the average deposit rate had risen since 2009. [Battle for deposits. Sharidan M. Ali. The Star. March 14 2011]

Categories
Conflict & disaster Environment

[2332] Sendai and Fukushima are not in Malaysia

Malaysia intends to have an operational nuclear power plant by 2021. Multiple individuals and groups oppose the plan. The opposition is based on multiple legitimate concerns. I believe the biggest fear is the chances of a nuclear meltdown. Chernobyl and the Three Mile Island accident are two examples popularly cited to rationalize the fear.  The latest incident around Sendai that included the shutdown of several plants and an explosion in Fukushima is becoming the third example.

It is wrongly becoming a third example.

While the explosion might have led to a meltdown — the latest news reported that the situation is under control now — the explosion itself was caused by a very strong earthquake that is unheard of in Malaysia.

Really, earthquakes in Malaysia hardly deserve the term. Tremors fits the characteristic better and those tremors hardly cause any damage to buildings, if it does at all.

The very limited possibility — out of this world chances — of Malaysia experiencing similar earthquakes that Japan is used to, and especially to the magnitude that Japan suffered several days ago, negates the nuclear incident in Fukushima from becoming a valid case to back anti-nuclear power position in Malaysia. There are many others examples to cite from, but Sendai is just not one of them.

Sendai and Fukushima are just not a precautionary tale for Malaysia. Anyone who thinks so deserves to be accused of being unfamiliar with Malaysia. To make a parallel out of the incident is to ignore local circumstances, which are essentially different to that of Japan’s.

Categories
Photography Travels

[2331] A lonely road in Versailles

This is somewhere in the Gardens of Versailles.

On the right beyond the wall is the residence of Marie Antoinette, the Queen of France whom lost her head to the guillotine.

Categories
Liberty Society

[2330] The police force and the military must remain separated

The roles of the police and the armed forces are different. One enforces the law while the other stands on guard against the enemy of the state. The difference in functions and in challenges both faces necessitate the two to be separated. When two security forces are combined, the power of the military expands. With that, there is a fear that the military might see everything that it faces as enemy of the state. The military becomes paranoid and then acts upon the policing power that it has. That is a step towards military rule.

I am raising this issue because I have read in the news recently that the police is cooperating with the military in fighting crime. In the Parliament yesterday, the Minister of Home Affairs confirms the news report.[1] He said that the Ministry was having strategic cooperation with several entities including the military. The cooperation includes the use of military camps for training and recruitment of police officers and joint patrol.

Whether this militarizes the police force is arguable, but what is certain is that it will expand the influence of the military in our society.

The goal of reducing crime rate in the country is laudable. The goal however does not justify all means. The rule of laws must still be adhered to. Rights must be respected, including those belonging to criminals. The goal also does not justify the erosion of separation between the police and the armed force.

The two must remain separated.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — Kementerian Dalam Negeri sedang dan akan mengadakan kerjasama strategik dengan pihak lain antaranya seperti Angkatan Tentera Malaysia yang telah dilaksanakan bagi menangani jenayah seperti penggunaan kem-kem tentera untuk melatih dan merekrut anggota polis, mengadakan rondaan-rondaan secara bersama dan menyerap bekas personel tentera dalam perkhidmatan polis. [Page 3. Hansard. March 9 2011.]