The Resilient Labour Market: Why Jobs Are Holding Despite Global Headwinds

Why Labour Markets Are Defying the Slowdown

The standard economic model predicts a clear chain reaction: when central banks raise interest rates, borrowing gets more expensive, companies invest less, consumers spend less, and workers eventually get laid off. Unemployment rises, wages cool, and inflation falls back toward target. This cycle has been incomplete. Higher rates clearly hit interest-sensitive sectors hard — property markets in many countries have corrected sharply, and business capital expenditure has slowed. But the broader labour market has proved more insulated than models predicted.

The services economy — where the vast majority of workers in advanced economies are employed — operates on shorter time horizons than capital-intensive industries. A restaurant does not need a twenty-year mortgage to serve dinner tonight. A software firm does not need construction financing to add users to an existing platform. Interest rate changes reach these businesses primarily through two channels: the wealth effect on consumer spending, and the cost of working capital for small businesses. Both effects are real, but they are slower and more diffuse than the direct effect on, say, a homebuilder or a manufacturer of industrial equipment.

The Labour Hoarding Factor

Perhaps the most important structural driver of employment resilience is labour hoarding. Companies that spent 2021 and 2022 desperately competing for workers — paying sign-on bonuses, raising base wages, offering remote flexibility — are deeply reluctant to let those workers go when demand softens. The experience left a lasting institutional scar. In surveys of chief financial officers, the difficulty of rehiring skilled workers consistently ranks as a top reason to retain staff through mild downturns rather than lay them off.

This pattern is especially visible in technology, financial services, and professional consulting — sectors that made painful cuts in late 2022, only to find themselves rehiring the same profiles at even higher salaries within twelve months. The lesson became embedded: for knowledge workers, the true cost of a cycle of layoffs and rehiring often exceeds the cost of carrying slightly excess headcount through a soft patch.

The Central Bank Dilemma

Strong employment presents central banks with a genuine policy dilemma. Their mandates require price stability, and services inflation is closely tied to wage dynamics. Wages growing at 3.5–4.5% — the current range across most major economies — are inconsistent with a sustained return to 2% consumer price inflation unless productivity growth accelerates meaningfully. The Federal Reserve, the European Central Bank, and the Bank of England have all signalled that they need "sustained progress" on wages before they are comfortable easing rates. Each strong payrolls number or upside wage reading shifts that threshold further out in time.

The paradox is that a resilient labour market — which is good news for workers — is one of the main obstacles to lower borrowing costs. Weaker employment data would, perversely, give central banks the permission they need to cut rates, which would then reduce the cost of mortgages and business credit for everyone. This circularity frustrates both policymakers and markets, and explains why rate cut expectations have been pushed back repeatedly over the past eighteen months.

The Emerging Market Dimension

In emerging economies, the labour market dynamics are structurally different. Large informal sectors — where workers are paid in cash outside the formal employment system — act as an economic buffer. When formal companies slow hiring or begin retrenchments, workers often shift into self-employment, gig work, or family micro-enterprises. Official unemployment statistics stay low, but income quality and economic security fall sharply. In countries like Indonesia, Nigeria, Mexico, and South Africa, informality rates exceed 50% of employment, meaning that headline jobless figures reflect only a fraction of the true labour market picture.

This has direct implications for monetary policy in these economies. The standard signal that tells a central bank when conditions have loosened enough to cut rates — rising unemployment — is structurally muffled. Policymakers must instead rely on proxy indicators like wage growth in the formal sector, consumer confidence surveys, and retail sales data, all of which are noisier and subject to greater lags than unemployment rates.