The central purpose of the proposed Priority Programme is to develop a deeper understanding of the challenges facing labour markets in Germany in particular and throughout Europe in a global context. The programme addresses pertinent research issues on the link between trade, technology, and demographic changes as they affect wages and employment. In an international perspective, the programme will analyse empirically the way the German labour market works with particular emphasis on labour market flows, on the role of institutions and policies, on the explanation for the increase in inequality, on demographic changes, and on the links to education and important non-economic motives and outcomes. An understanding of these issues is key for policies relating to skills development of the population at all ages, family issues and gender in the labour market, demography, child development, health, social policies, crime, immigration, as well as the macroeconomic performance of the labour market. The challenges posed by competition and potential immigration combined with demographic developments will not only affect various labour market groups in different ways (with important consequences for inequality), but also force human resource management practices to adapt.