Motivated by the highly-unionized public sectors, the high public shares in total employment, and the public sector wage premia observed in Europe, this paper examines the importance of public sector unions for macroeconomic theory. The model gen- erates cyclical behavior in hours and wages that...

This paper shows that a modified real business cycle (RBC) model, one that includes home production and fiscal spending shocks, can solve one of the RBC puzzles and generates zero correlation between wages and hours. In addition, the micro-founded model presented here provides a sound...

Motivated by the highly-unionized public sectors, the high public shares in total employment, and the public-sector wage premia observed in Europe, this paper examines the importance of public-sector unions for macroeconomic theory. The model generates cyclical behavior in hours and wages that...