'Smart' Employment Policy : The Employment Credit-Trading System

The U.S. Federal Reserve System states the ultimate goals of its monetary policy to be full employment and price stability. Though they may not state it so explicitly, policymakers of most countries would also likely regard full employment as one of the chief goals of their economic policies. Despite the high priority assigned to the goal of full employment, however, recent years have seen many countries struggling with persistent unemployment. Existing policy measures to address unemployment seem to be, for various reasons, failing to have a sufficient impact. It may be that globalization and other factors have weakened the effects of existing policies, or that public mistrust and other political concerns have hampered implementation of these policies. Whatever the case may be, the fact that existing policies are not working properly highlights the need to find more effective means to address unemployment. Furthermore, recent issues such as widening inequality and the rise of smart machines seem to be compounding the urgency of this matter.This paper represents an attempt to theoretically identify more effective means of employment policy. Specifically, it examines the idea of applying the artificial trading-market approach, which is commonly used in environmental policy, to employment policy. The artificial trading-market approach is one in which specific quantitative goals are established through market-external processes such as social consensus, and the resource allocation to achieve those goals is made through the maximal use of market mechanisms.As a specific design of the artificial trading-market approach to employment policy, this paper suggests a policy, tentatively named “the employment credit-trading system”, and investigates its expected effects. In this system, the scale of unit subsidy needed to achieve the employment target is determined not by government but as the price of credit that clears the credit-trading market, in which the government participates as a credit consumer. Thus, we can expect the possibility of more precise and flexible targeting. This paper also shows that such a system would minimize the social cost of attaining the employment target