Faculty of Economics and Business Administration Publications Database

Fiscal Stimulus and Labor Market Policies in Europe

Lechthaler, Wolfgang
Merkl, Christian
Volume: 37
Number: 3
Pages: 483 - 499
Month: March
ISSN-Print: 0165-1889
Link External Source: Online Version
Year: 2013
Keywords: Fiscal Multipliers; Fiscal Packages; Labor Markets; Short-time Work; Unemployment
Abstract: 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.