Is part-time employment an adjusting valve?: Business cycle analysis on the labor market in Japan by dual search and matching model

This study examines the role of part-time employment in Japan’s business cycles from 2002Q1 to 2018Q3 using a two-sector competitive search and matching model. The model is estimated by the generalized method of moments (GMM). The results demonstrate that part-time employment exhibits significantly higher volatility compared to full-time employment in response to productivity shocks. Companies adapt their utilization of part-time labor through both extensive and intensive margins to a similar extent, which stands in contrast to full-time workers whose labor input variation is primarily explained by the intensive margin. These findings substantiate the concept of part-time employment serving as an “Adjusting Valve for Employment” within the Japanese labor market. However, the model only accounts for a limited portion of the fluctuations in the proportion of part-time workers among total employment. The GMM estimation reveals that a general productivity shock adequately explains variations in wage rates and market tightness, but it falls short in accounting for fluctuations in the share of part-time employment. Thus, the findings suggest the necessity for more sophisticated models to amplify the variation in part-time employment while keeping wage rates and market tightness unchanged.