The internalisation of the labour market in the Australian vehicle building industry

Abstract

This thesis discusses the internalisation of the labour market in the Australian vehicle building industry in the light of three important factors: institutions, firmspecific human capital and internal information about workers' ability. Despite institutional hindrances, some of which are specific to the labour market in Australia, there appears to be a high degree of internalisation in the Australian vehicle building industry. Since internalisation is a feature of labour markets operating in many different institutions and circumstances, the thesis explores whether and how economic factors, firms-pecific human capital and internal information about workers' ability, promote internalisation of labour markets. The review of human capital theory and methodologies used thus far to test the importance of firm-specific human capital formation as a factor in labour market internalisation suggests that direct observation and documentation of skill formation are a necessary supplement in investigating the existence of firm-specific human capital in workers' skill and knowledge. The analysis of jobs at each level of the job hierarchy calls into question the prevalent claim tha-c firmspecific human capital is a significant cause of the high degree of labour market internalisation. The statistical analysis of wage data, on the other hand, suggests strongly that internal information about workers' ability is a key factor in the internalisation of labour markets. The major part of wage movement is explained by the accumulation of internal information on workers' ability during employment. This conclusion is also supported by the analysis of wage and skill data. Finally, it is suggested that labour markets are more likely to be internalised in industries which require large-scale production processes.