Shock Propagation within Multisector Firms

This paper studies the role of multisector firms in the cross‐sectoral propagation of economic shocks. By leveraging an increase in import competition from China as a source of a negative economic shock, we show that employment of an establishment in a given industry is negatively affected by shocks that impact establishments operating in other industries within the same firm. We explore a range of explanations for our findings, emphasizing the role of within‐firm input–output linkages and within‐firm diversification across sectors. At the sectoral level, shocks that propagate through firms' internal networks have a sizable impact on industry‐level employment dynamics.