The Reserve Bank of Australia’s (RBA) rate hike cycle is turning out to be barely a barnacle on the great leviathan that is the Australian labour market. Unemployment has barely budged even as the central bankers do all they can to cool the economy. The unemployment rate still sits at 3.5% — seasonally adjusted — with companies desperate to add full-time workers.

As the next chart shows, that rate of 3.5% is only scarcely above the record low of 3.4%.

The RBA has indicated it will be paying close attention to the labour market to inform choices over future rate hikes.

Mortgage holders could be forgiven a sigh of despair that the labour market is proving so resilient. Job-seekers’ gains are mortgage holders’ losses: another 0.25% hike in rates at the RBA’s May meeting is likely, and banks will probably pass that on, meaning household budgets will be under even more pressure.

So what is going on? Usually, higher interest rates would stop firms from hiring. This is part of the theory of how monetary policy works — slower spending from customers and higher interest payments on any debt are supposed to send shivers of fear through business owners, enticing them to slow down expansion plans, stop hiring and maybe even cut staff. That should lengthen the unemployment queues, further stop people from spending, and reduce the ability of businesses to raise prices. That’s how interest rates are meant to beat inflation.

But the theory is only useful when it works. And for now, businesses are adding workers enthusiastically despite the headwinds. What is particularly impressive is that hiring is keeping up with a migration program that is bringing in workers at a record rate. The unemployment-to-population ratio is steady at  64.4%, only just below the highest level in recorded history, which was 64.5% in November last year.

It’s a beautiful set of numbers, really, because a tight labour market is a powerful force for spreading well-being into corners where it doesn’t usually reside. Youth unemployment is down enormously, underemployment is at record lows, female labour force participation is at record highs and long-term unemployment is drying up. They don’t publish unemployment rates specifically for Indigenous peoples, but I suspect they’d be falling too — in the US, Black labour force participation rates are now higher than for white workers.

A tight labour market is, in short, a powerful progressive force.

If you were going looking for a place where there could be a slight sign of deterioration, it would be in NSW, where the participation rate and the employment-to-population ratio fell slightly. That is also the state where house prices have fallen furthest, so perhaps rate hikes are gaining some traction there. On the other hand, it is also the state with by far the lowest unemployment rate — just 3.2%. Holding the unemployment rate that low for a long time is unlikely.

The dream scenario for the economy is the labour market holds its strength even as the inflation rate falls. It’s not what should happen, in theory, but as we’ve seen, sometimes economic theory doesn’t explain reality. We can hope!

This article was first published by Crikey.