In recent years, considerable attention has been paid to the nature of youth unemployment in Australia. Increasingly, it has become recognised that the best way to approach this research is through the use of longitudinal survey data. This thesis is interested in the affect neighbourhoods have on youth labour market outcomes. Neighbourhood effects are said to exist when there are localised externalities present, that is, when the payoff to different decisions is affected by the behaviour and characteristics of other people in the neighbourhood. In the neighbourhood effects literature, it is generally argued that these effects are transmitted through job networks, peer groups and role models. This thesis will combine the Australian Youth Survey (AYS) with neighbourhood data derived from the 1991Australian census to create a data set on individuals, with information on their location and immediate environment. From this, an econometric model of youth unemployment is constructed. After controlling for the individual's personal and family background characteristics, the affect that neighbourhoods have on youth unemployment is assessed. The results indicate that not only are neighbourhood effects important, but that they are asymmetric in nature. It is found that neighbourhood effects are primarily downward effects, and are most powerful in low socioeconomic neighbourhoods. It is argued that macroeconomic policy alone is insufficient to overcome this problem, and that more detailed intervention at the neighbourhood level is required.