The Bulgarian labor market has seenremarkable improvements in recent years and has contributedto strong economic growth.The benign environment for jobcreation is now changing, as the global economic crisisimpacts on labor market demand in Bulgaria.Compared to theEU27 averages, activity and employment rates have remainedlow, and Bulgaria has significant untapped domestic laborreserves. Bulgarian pupils in school also do not acquire thenecessary skills and competencies to compete in a highinnovation economy. Continued available vacancies suggestthat skills shortages remain a barrier to employment evenduring the crisis and measures to retrain and up-skill theunemployed and those at risk of lay-off is an importantpolicy direction for the short-term. In light of Bulgaria sdemographic decline over the coming decades, medium-termgrowth and convergence require sustained increases in laborproductivity and investments in human capital. Short-termmeasures during the economic crisis ideally combine effortsto keep workers in employment through temporary publiclysubsidized short-working hour schemes as well as the use ofunemployment benefits and measures to accelerate transitionsfrom old to new jobs. The economic crisis is an opportunemoment to address skills shortages both to tackleunemployment and to help the recovery in the short-term andto promote the foundation for medium-term economic growthand convergence.Looking at the medium term, withBulgaria s labor productivity remaining low in a Europeancomparison, sustained interventions from early childhood toadult education are necessary over the coming years to raisehuman capital and ensure the increases in labor productivitythat Bulgaria needs to accelerate growth and convergence. Insatisfying the growing demand for skilled labor and boostingemployment, Bulgaria needs to urgently look at promoting thetransition of young people from education to the labormarket, including through keeping them longer in school andensuring they earn the skills that are in demand in thelabor market as well as promoting part-time employment andinternship programs for young people.