Shirking, unemployment and aggregate fluctuations

Empirically, real wages exhibit relatively little cyclical Variation and a weak cyclical pattern. Early real business cycle (RBC) models predict, to t he contrary, large, procyclical real wage movements. Incorporating efficien cy wages into a RBC environment would seem promising since one prediction f rom the efficiency wage literature is real wage rigidity. This paper evalua tes a common microfoundation for efficiency wages, the shirking model, with respect to its predictions for rear wages within a RBC-style model. Simula tions of the model reveal that it can generate dampened but still strongly procyclical real wage behavior.