Shock Propagation within Multisector Firms

Abstract 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.