Fiscal Stimulus and Labor Market Policies in Europe
Several contributions have recently assessed the size of fiscal multipliers both in RBC models
and in New Keynesian models. This paper computes fiscal multipliers within a labor selection
model with turnover costs and Nash bargained wages. We find that demand stimuli yield small
multipliers, as they have little impact on hiring and firing decisions. By contrast, hiring subsidies, and short-time work (German "Kurzarbeit") deliver large multipliers, as they
stimulate job creation and employment.