This paper shows the preconditions of the labour market forecasting and policy analysis system dynamics model development in Latvia. Labour market planning is topical in any country. The novelty element of the paper relates with the practical application of the system dynamics method for the state needs in Latvia for labour market forecasting as well as with development of a one of the most powerful models of labour market forecasting in the World. In the paper the system dynamics experience in labour market forecasting and the international practice in labour market forecasting are investigated; the structure of the model and its several components, as well as the possibilities of the model and the forecast of the most important parameters of labour market in Latvia are shown.