SummaryHow much does family background matter in determining the labour market success of young people? What role does education play in the transmission of advantage from one generation to another? Studies which have examined observable family characteristics have generally concluded that family background has only a moderate influence upon labour market outcomes, and that this influence is generally mediated through educational attainment.However the relevant family characteristics are typically difficult to identify, let alone measure. This paper examines a sample of siblings from the Australian Longitudinal Survey in order to capture the effects of unobservable family characteristics. Siblings, by definition, have their families and associated environments in common. Thus the extent to which siblings have similar outcomes in the labour market is an indicator of the effect of family background (defined broadly) on labour market success.A number of different outcome measures are examined, including earnings, incomes and experience of unemployment. The effect of transitory variations on these outcomes is discussed. Sibling outcomes are found to be quite strongly correlated, though differences are observed between brother, sister and mixed sibling pairs.Because unmeasured family characteristics are associated with both education and labour market outcomes, their addition to conventional human capital models leads to a downward revision of the effects of education. However such conclusions must be considered in the light of the reliability and validity of the measures of educational attainment.