This thesis studies the operation and efficiency of the aggregate Australian and State Labour markets by analysing the search and matching process. An aggregate production function model of the search and matching process is developed and estimated for Australia and each of the States. The impact of the matching function and real wage misconceptions on the efficiency of the labour markets is then considered. The analysis suggests that shifts in the matching function increase potential employment growth. However, the impact of real wage misconceptions on the efficiency of the search and matching process appears surprisingly limited.
A key assumption underlying the aggregate production function model, constant returns to scale, is also tested. The results suggest that Queensland, South Australia, Western Australia and the aggregate Australian market, exhibit increasing returns to scale, while the larger, more mature labour markets of New South Wales and Victoria appear to exhibit constant returns to scale.
The structural stability of the aggregate Australian and each of the States' labour market search and matching process is undertaken through an analysis of the unemployment - vacancy relationship (the Beveridge curve). The Australian, New South Wales and Queensland markets appear to have undergone a structural transformation in the late 1980's, early 1990's, with the Beveridge curve shifting out in all three markets. However, in the case of New South Wales, the curve appears to have shifted back in at the end of 1995.