Despite the great technological advances, the work is still one of the most important factors of production. The labor market is a component of the business environment of the organization, which provides human resources, in order to obtain benefit with their support, to organization and its consumers. Human resources present a component that can add competitive precedence to the company, which is an important factor of its own development – human capital. The paper analyzes the labor market situation in Serbia, identifies problems mismatch of supply and demand, discusses the state of labor market indicators. The starting point is that an employment has a multidisciplinary character, thus, that changes in the labor market have strong direct and indirect effects on economic development. The paper consists of three main parts. The first part of the paper deals with the analysis of the employment situation in Serbia, compared with the EU and neighboring countries. The second part discusses the impact of labor markets on economic development, with an emphasis on small and medium companies, incentives and limitations and the employment through the self-employment and employment in new small businesses. The third part is addressing the goals of the labor market, which include increasing employment, reducing unemployment and stimulating the development of business by applying active labor market measures. This section emphasizes the need to createconditions and favorable environment for investment activity, the application of new knowledge, skills and the technological innovation, in order to ensure competitiveness and the developing of new business. Кey words: labor market, employment, entrepreneurship,business environment, economic development