To catch up with more advanced economies, Serbia urgently needs to improve the functioning of its labour market. This report reviews labour market trends and the principle challenges to labour market policy, making a series of recommendations. Despite many reforms, new business growth until now has been far too slow to compensate for job losses elsewhere. Recent reforms of labour law should be followed up by further efforts to improve the climate for business and productive work. Labour regulations must be flexible, but they should also be enforced more consistently. For all this to happen, it is essential that an effective social dialogue can take place and that it encompasses expanding and declining segments of the labour market