methodology we propose for identifying firm-level demand shocks has some advantages relative to the shocks previously exploited. Although exchange rate movements and innovations leading to patents are difficult to forecast, variation over time is likely to reflect in part economic fundamentals and policy choices. These developments can be monitored and analyzed by firms, which may therefore partly respond in anticipation.<sup>6</sup> Identifying the effects of unexpected exchange rate movements is further complicated by the fact that they are subject to incomplete passthrough, which may be influenced by the currency in which trade transactions are denominated and vary across firms and markets (Amiti, Itskhoki, and Konings, 2014; Gopinath, Boz, Diez, Gourinchas, and Plagborg-Moller, 2020).<sup>7</sup> Unexpected GDP shocks in destinations are arguably less subject to this concern.<sup>8</sup> Our paper further speaks to a recent strand of work highlighting the role of internationally active firms in the international transmission of business cycles. Using French firm-level data, di Giovanni, Levchenko, and Mejean (2018) show that trade linkages with a foreign country are associated with a significantly higher correlation between a firm and that foreign country, which has significant macro implications. In related work, di Giovanni, Levchenko, and Mejean (2020) document that larger French firms are significantly more sensitive to foreign GDP growth. Using a quantitative model, they find that this granularity accounts for 40 to 85% of the impact of foreign fluctuations on French GDP. Focusing on exporting firms, we contribute to this literature by estimating the response of firm-level sales, employment, investment and wages to both expected and unexpected fluctuations in foreign GDP growth. In addition, we use employeremployee data to estimate how each of these shocks impacts the different components of worker compensation within and across heterogeneous exporters. As Grigsby, Hurst, and Yildirmaz (2021) emphasize, measuring this nominal wage adjustment in micro data is key for disciplining macroeconomic theories of nominal wage rigidity.<sup>9</sup>

> 6Since there are no official forecasts for bilateral exchange rates, it is often difficult to isolate the unexpected component of exchange rate shocks.

> 7Furthermore, exchange rate movements may impact not only firm revenues in export destinations, but also the prices of materials, components and technologies sourced from those markets (which may complement or replace workers). It has been difficult to fully distinguish between these effects. Unexpected demand shocks in destinations are arguably more likely to impact firm performance primarily through exports.

> 8In an important contribution, Hummels, Jorgensen, Munch, and Xiang (2014) examine effects of offshoring and external demand shocks on wages, using employer-employee data from Denmark. Identification of demand shocks exploits variation in firm-specific weighted averages of imports of particular goods by the firm’s trading partners, using the firm’s initial shares as weights. We innovate by isolating the unexpected (and idiosyncratic) component of demand shocks in destinations. In addition, we separately identify effects on the different components of pay, show that wage gains accrue mainly to top earners, and to firms initially led by highly skilled top executives.

> 9In concurrent work, Garin and Silv ́erio (2024) examine the effects of idiosyncratic demand shocks associated with the 2008 global recession on wage setting of Portuguese exporters, and find evidence of significant wage adjustments within firms. The methodology we propose for systematically isolating the unexpected component of macroeconomic demand shocks in destinations can be applied more generally to assess the effects of unforecasted (positive and negative) fluctuations in GDP growth. By design, our approach is arguably less likely to capture

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