The deceleration of economic activity and the necessity for structural change in order to return to sustainable growth imply a need for a better matching of workers to jobs. This chapter looks at the main institutional features and policies in the labour market that are behind the mismatch between qualified workers and available jobs, which is severe in international comparison. A well designed strategy to activate the unemployed can help ensure that unemployment benefit recipients find a suitable job as fast as possible and minimise the risk that the availability of unemployment benefits unduly reduces work incentives. An adequate level of coordination between the administration of unemployment benefits and activation policies lowers the risk of benefit traps if activation policies are used to ensure that recipients re-qualify for unemployment benefits.Reform ofemployment protection legislation would help to increase the employment prospects of highly qualified young workers and other groups who face entry problems. Immigrants have high participation rates and relatively low unemployment, but they hold precarious jobs for which they are overqualified. Hence, there is scope to increase their labour market integration. Housing market policy reforms need to focus on removing barriers to geographic mobility, and the wage bargaining system should be reformed in order to ensure an efficient allocation of labour by allowing wage agreements to reflect firm-level conditions.