Unemployment (mainly as an urban phenomenon) and underemployment continue to be serious social
problems in Ethiopia despite some improvements in recent years. This paper attempts to assess the labor
market institutions, evaluate the existing labor market policies and discuss their role in explaining and
solving the unemployment problem based on review of policy documents and relevant empirical
literature. The study finds out that there are different policies and strategies introduced and implemented
by the government for employment generations. Those policies and strategies on the demand side of the
labor market include the special incentives and supports provided to private sectors and the public
employment generation schemes. On the supply side of the labor market, there are significant efforts to
improve labor productivity in both farm and off-farm activities. The potential of these interventions to
have significant impact on employment has been constrained by the extensive informal sector in Ethiopia,
the low demand for labor and lack of government budget. The Labor market institutions that govern
employment relations in Ethiopia are generally found to be weak. This weakness is characterized by
limitation of legal framework and lack of social dialogue among institutions.