Austria has an inclusive and well-performing labour market which has traditionally secured high aggregate employment rates and well-balanced and competitive wage levels. Success is also due to strong human capital formation in the education system, with a high share of graduates in the labour force with at least upper secondary education, notably through high quality vocational training, even if enrollment in tertiary education is lower than in other high-income OECD countries. This system continues to deliver good outcomes in the core labour market of primeage skilled workers, but has recently shown growing weaknesses in more marginal segments involving older, less-skilled, and less-well educated young and immigrant workers. Employment of mothers with small children is also traditionally low. This chapter describes the new challenges raised by the emerging segmentation in the labour market and authorities’ efforts to strengthen both labour supply and demand in the vulnerable segments. Against these policy objectives, measures which may lead to strong increases in minimum wages, in minimum social incomes, and in incentives for early retirement could prove counterproductive. The chapter offers further policy recommendations, including in the education system, in order to overcome any entrenchment in labour market segmentation.