The Korean Journal of Economic Studies
Theoretical Economic Study on the Employment for Vulnerable Groups: Focusing on the Trading System of Employment Performance for Vulnerable Groups
Hyunwoo Hong (Chungnam National University) and Huncheol Jeon (Seoul National University)Year 2024Vol. 72No. 2
The employment encouragement system targeting vulnerable groups, represented by the mandatory employment initiative for these groups, is part of the labor market redistribution policy that supports the employment of vulnerable groups in the labor market to aid in their self-reliance. However, deadweight loss occurs when vulnerable workers are employed at wages higher than their productivity. In other words, the introduction of the employment encouragement system for vulnerable groups leads to a conflict between inefficiency and redistribution. In markets where both profit and social enterprises coexist, the introduction of a mandatory employment system for vulnerable groups typically results in a reduction in social welfare compared to situations without such a system. On the other hand, applying a floor-and-trade method, which allows trading rights for the employment of vulnerable workers among enterprises, can reduce deadweight loss of social welfare compared to a system with only mandatory employment for vulnerable groups. This study suggests that the introduction of a social performance trading system can lead to appropriate levels of efficiency and redistribution outcomes for individual enterprises through market-driven transactions.