The study focuses on labor market behavior in the light of disappointing employment growth and considerable wage inequality. Its main empirical conclusions are:
i) that rising unemployment can only be partly explained by rising wages; ii) labor markets for skilled workers operate much better than for the unskilled; and iii) wage differentials associated with non-economic characteristics are large by international standards. The study reviews and is broadly supportive of recent labor legislation. It argues, however, that a broad policy framework that goes far beyond labor market interventions is needed to improve employment growth and reduce inequality.