A non-perpetual shirking model

- We derive a finite-horizon version of the Shapiro-Stiglitz shirking model of unemployment.
- Workers' behavior may change as they approach the end of an employment contract.
- Our model predicts that wages should be rising in age for an unchanged rate of unemployment.

We provide a finite-horizon counterpart to the Shapiro and Stiglitz model of unemployment to show how workers' effort falls as they approach the end of an employment spell. The model provides a reason for wages rising more rapidly than productivity.