This paper investigates the claim, often put forth by Real Business Cycle proponents ("e.g. Prescott(1986)), that the poor performances of their models in matching real world aggregate labor market behavior are due to the fact that observed real wage payments do not correspond to the actual...

This paper investigates the claim that real business cycle models perform poorly in matching real-world aggregate labor market behavior because observed real wage payments do not correspond to the actual marginal productivity of labor but contain an insurance component not accounted for by the...