The latest ABS Labour Force survey shows Australia's unemployment rate holding firm at 4.1% in January 2026 — below most forecasts and remarkably low given 425 basis points of rate hikes since May 2022.
Resilient despite rate hikes
Throughout the entire tightening cycle, unemployment has remained in a narrow 3.5–4.5% range — defying predictions of a sharper rise. The labour market has absorbed the impact of higher interest rates far better than most economists anticipated, supported by strong population growth and structural demand in key sectors.
Why has employment held up?
- Strong immigration: population growth of ~2.4% annually is boosting both labour supply and demand — new arrivals need housing, services, and infrastructure
- Services sector strength: healthcare, education, and professional services continue to add jobs even as construction and retail slow
- Government spending: public sector employment growth, particularly in aged care, NDIS, and defence, is acting as a floor under the labour market
Underemployment the real concern
While headline unemployment looks strong, underemployment sits at approximately 6.5%. This means a significant share of workers want more hours but can't get them. Combined unemployment and underemployment — the total "underutilisation rate" — is closer to 10.5%, painting a less optimistic picture of overall labour market health.