This report studies the Bulgarian labor market with a view to understand the interactions between the performance of the Bulgarian economy and the functioning of its labor market. The report assesses also the position of Bulgaria vis-a-vis compliance with the "acquis communautaire," and provides a set of key policy recommendations that may enhance job creation potential in years to come. In the aftermath of a steep adjustment process, the Bulgarian labor market resembles a sclerotic market, not dissimilar from the worst performing European markets. Nevertheless, the existing labor market policies and institutions, with the exception of excessively high payroll taxes and a somewhat strict employment protection legislation, are not necessarily synonymous of labor market rigidity: unemployment support schemes are modest, the minimum wage is not high, and industrial relations systems do not appear to prevent an efficient wage dispersion across sectors. Thus, the poor performance of Bulgaria is likely to be the result of a chronic inability to restructure its old sector and to tackle fundamental structural problems. In terms of compliance with the "acquis communautaire," Bulgaria's legislation appears aligned with most of the European Union requirements in the labor area. However, the standardization of working conditions requires substantial investments and a strengthening of administrative capacity to implement EU legislation.