There are large differences in labour market performances in EU countries, resulting in part from different policy settings. High unemployment, particularly among young people, and low labour mobility within and between countries coexist with skill and labour shortages in some countries and regions. This reflects weaknesses in national labour market policies, such as high costs of exit and entry, training mismatches or disincentives to participation, and also barriers to labour mobility. Well performing labour markets are important for facilitating adjustment to shocks, especially in the monetary union, allocating resources to best uses, and in dealing with potential labour market shortages related to ageing. Mobility within the EU can in principle help to fill labour market shortages, but the cost of moving for individuals is increased by policy-induced barriers to mobility such as the loss of pension entitlements, lack of recognition of qualifications, inaccessibility of some public sector jobs and housing market frictions. To achieve better functioning EU labour markets, labour market institutions should be improved and obstacles to mobility reduced. With demographic changes underway, most EU countries expect growing shortages of skilled labour. In principle, this should be addressed through increasing labour participation and employment rates of female, young and older workers and migrants already living in the country, and making sure that training and education match skill requirements by employers. Nevertheless, policies at the EU level should be developed to ensure that migration responds more directly to specific labour market needs particularly for high-skilled workers.