One of the principal criticisms of real business cycle models is that
the assumptions made about labor markets do not accord with the actual
structure of these markets. This paper replaces the standard spot lab
or market with a market characterized by imperfectly flexible wages, w
hich corresponds to impressions of contractual labor relations. It is
found that the behavior of the model, in terms of the predicted varian
ces and correlations, is similar to that of the standard real business
cycle model, but that the variability of hours worked and the correla
tion of hours worked with wages will depend on the structure of the la
bor market.