In modern societies, employment has not only economic functions, such as income creation, but also social functions, such as alleviating inequality or enhancing social stability (high unemployment threatens social stability). Since utilities stemming from the social functions of employment cannot be exclusively enjoyed by the firm making the employment decision, externalities arise in the firm’s employment decision.Even without employment’s social function, employment externality can arise when there is government expenditure against unemployment and/or deficient aggregate demand with involuntary unemployment. Particularly, corporate globalization raises the possibility of employment externality as it brings about discrepancies more often between private firm’s profit maximization and national economy’s welfare maximization.Existence and properties of employment externality offers a new rationale and means for employment policy. Since a precise estimation of the scale of externality is extremely difficult, a practical remedy for externality is a ‘standard and price’ approach where a socially agreeable target (standard) is set and an appropriate subsidy or tax (price) is implemented to attain the target (Baumol and Oates 1971). We can think of two kinds of policy based on such an approach: a pricesetting policy (carbon tax type) and a quantity-setting-flexible-price policy (emission trade type). Since the latter type policy seems to be more appropriate for our case, this paper introduces and investigates the ‘employment credit trading system (ECTS)’, a tradable-credits approach to employment targeting. Under this system, firms that hire employees are given the right to issue a corresponding quantity of employment credits, which they could then sell on the credits trading market. Firms that lay off their workers would be required to purchase the corresponding credits. The government would administer a market for trading employment credits and participate in the market as a credit consumer by setting a job creation target. The price of credits would be determined by market supply and demands for credits that reflect the labor market conditions and government’s job creation target.ECTS seems to have several comparative advantages over existing policies. First, as the tradable-permits approach is theoretically proved to be a social-cost-minimizing policy for emission control, ECTS can be a feasible social-cost-minimizing policy for employment targeting under certain conditions. Second, it will be fiscally more efficient than existing policy such as fiscal stimulus: creating jobs with a smaller budget. Third, it can be a ‘smart’ job creation policy: an employment targeting policy with high precision and less risk. The government can achieve the employment target accurately with ECTS. It has only to adjust the bid price of employment credit so that its credit demand is met. In addition, since fiscal input is exactly proportionate to the size of job creation in ECTS, there will be no possibility of fiscal squander. Fourth, it seems to be able to address better structural unemployment issues such as ones stemming from globalization and/or automation than existing policies. Fifth, it can also address quality of jobs by setting the unit of credit as a job with a certain amount of wage, say, a full-time equivalent job with minimum wage.If the policy proposed here is as practically feasible as examined theoretically, then it may lead to a broader notion of employmentcentered economic policy. Employment targeting by means of employment credit trading may become one of two pillars of macro stabilization policy along with inflation targeting by monetary policy. Employment-centered economic policy where policy authority puts more emphasis on managing unemployment than aggregate demand or income growth can be a better option in the sense that it can ensure not only efficiency, but also some degree of equity