Serbia approved laws reducing job protection and raising the retirement age for women on Friday in the first steps of deep reforms to revive the seriously flawed economy, and fight high unemployment.
Parliament is also set to debate privatisation and bankruptcy law by the end of the month as part of the wide-ranging reforms.
Serbia, which is heading for a public debt of 70 percent of gross domestic product this year, began negotiations in January to join the European Union.
The labour and pension reforms are intended to increase flexibility in the labour market.
They are also intended to lower the costs of shedding staff by reducing statutory redundancy payments, while opening the way to reducing a huge public-sector labour force.
A total of 190 lawmakers in the 250-seat strong parliament supported the long-awaited laws, despite hostility from the opposition and unions arguing that the measures will hit workers too hard.
Serbian Prime Minister Aleksandar Vucic has argued that the laws are vital since Serbia has "more pensioners than those employed, and of those, more than 50 percent work in the public sector."
The Balkan state is expected to post a record budget deficit of 8.0 percent of output this year, with growth forecast to fall to 1.0 percent, down from 2.5 percent last year.
But output could fall further by 0.2 percentage points owing to devastating floods that struck in May.
The new labour law is intended to make the job market more flexible, making it easier for employers to hire and fire people.
The government hopes that the law will reduce an unemployment rate now running at more than 20 percent, while enabling it to reduce the public sector of more than 700,000 workers in a population of 7.2 million.
The pension law raises the retirement age for women from 60 to 65, the same as for men, by 2032.
Vucic, who was elected earlier this year on a promise to overhaul Serbia's ailing economy, said his cabinet was ready to push through painful reforms that include increased taxes, as well as fresh cuts in the public sector and to generous subsidies.
But he admitted that he was "not ready" to allow the decrease of pensions by 20 percent nor reducing public sector wages by 20 percent, proposed within austerity measures by his finance minister.
That minister, Lazar Krstic, stepped down last week citing a disagreement with Vucic over the pace of economic reforms.