Machines and machinists: Importing skill-biased technology

Miklós Koren, Márton Csillag and János Köllő

April 2019

Abstract

Which workers gain and which workers lose from technical change? We study the wage effects of new, imported machinery in Hungary between 1988 and 2004 through the lens of a model. In our model, new machines are faster and more reliable than old ones. Both characteristics complement worker skill: better workers will be assigned to new machines, where their productivity and wage will increase. We confirm these model predictions in a case study and in a representative sample of Hungarian manufacturing machine operators. Workers assigned to imported machines earn about 5 percent more than similar workers at similar firms. The returns to formal education and unobserved skills are higher on imported machines. The increased availability of imported machinery due to trade liberalization is responsible for about 40 percent of the increase in wage inequality in our sample. Our results suggest that imported machines can help propagate skill-biased technical change.