Why don’t improvements in the business environment and deregulation of labour markets always result in the reduction of the unemployment rate? This question is addressed by looking at the relation between the level of regulatory burden for doing business and the labour market, and the unemployment rates in the six Western Balkan countries and territories—Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia. The sole dependent variable is the level of unemployment, which is examined in relation to the selected World Bank “Doing Business” indicators in the form of overall distance to frontier and labour market regulation pertaining to dismissing workers and tax wedge. The WB6 countries managed, during the past five years, to shorten the distance to the frontier, which has yet to result in a significant drop in the unemployment level. One of the possible reasons for this is that business and labour market reforms, though introduced, are not fully or properly implemented. The other is that some non-economic variables, such as the strength of political institutions and the level of corruption, undermine the positive effect of economic reform on the business environment. The paper concludes with suggestions for further research.

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