This report identifies and quantifies Nepal's key jobs challenges and the implications for future job creation, job quality and gender disparities. The diagnostic examines the slow pace of structural transformation, the existing distribution of jobs by work status, productivity level and worker characteristics, and the role of migration in absorbing excess labor supply. The analysis of private sector labor demand finds that most firms are micro-sized, and the pace of wage job creation - although increasing - is insufficient to absorb job seekers, especially women. A new SME survey conducted for this study concludes that small firms struggle to compete and access credit, and they lack the capacity to obtain the skills and other inputs necessary to increase their product quality, ultimately limiting their growth capacity. Nepal's business environment and labor regulations create further impediments to dynamic, job-creating economic growth. A set of policy recommendations is offered to mitigate labor demand and supply challenges to achieve better labor outcomes in Nepal.