This paper uncovers the role of firms' hiring decisions as a novel source of state dependence in the fiscal spending multiplier. Hiring is a costly activity as it requires firms to temporarily divert employees from production to recruitment and training of the new hires. Thus, a firm that hires faces a tradeoff between current and future production. A fiscal stimulus carried out when the hiring rate is already high induces firms to hire more when it is costlier, resulting in a weaker response to the increased aggregate demand. Differently from previous studies, I provide reduced form evidence that expansionary spending multipliers depend on the hiring rate of firms, but not on aggregate labor market conditions. I show that they are lower when the hiring rate is higher. I then develop a general equilibrium model with hiring frictions in the labor market to study the propagation of government spending shocks across labor market states. In line with the reduced form evidence, the model shows that output is less responsive to expansionary fiscal policy when the hiring rate is higher.