This report stresses the need for a broad and substantial upgrading of the quality of the U.S. work force and outlines seven critical policy areas that require coordinated action to meet the challenge. Chapter 1 discusses the Workforce 2000 Project, a major Department of Labor effort designed to ensure that the work force has the skills and flexibility that will be required in future jobs. This chapter highlights special initiatives under the Job Training Partnership Act (JTPA) to improve the employability of the work force. These interrelated efforts concern at-risk youth, workplace literacy, dislocated workers, and improved coordination of job-related services. Chapter 1 also summarizes accomplishments under the individual titles of JTPA in 1986 and reviews developments in other training and employment programs administered by the Department, including the Senior Community Service Employment Program, apprenticeship, the Employment Service, the Unemployment Insurance Service, and Trade Adjustment Assistance. Chapter 2 summarizes the results of employment-related research and evaluation projects completed during 1986. These projects are concerned with social and economic issues, labor market studies of specific groups of workers, and program development and improvement. Chapter 2 also lists 11 research and evaluation reports completed during program year 1986. The report includes a statistical appendix. (NLA)