The recent World Development Report on Jobs 2 notes that government’s role should be to set conditions for private sector job creation, and remove obstacles to creating jobs with the highest development payoffs. Policies should also address imperfections in the labor market such as inadequate or asymmetric information, uneven bargaining power, limited ability to enforce longterm commitments, and insufficient insurance against employment-related risks. Labor policies and institutions — including regulations, collective representation, active labor market programs, and unemployment insurance — can, in principle, be used to address these imperfections. Flexible labor legislation is essential for promoting creation of new businesses, growth of established firms, and job creation. A task of labor law and other labor market institutions is to balance the need to protect workers’ rights with the need to increase labor market flexibility, and establish a more conducive environment for creation of productive employment opportunities and enhancement of social dialogue.