Machines and machinists: The effect of imported capital on wage inequality∗

This paper estimates the effect of capital imports on the wages of a large, representative sample of Hungarian machine operators. Using linked employer-employee data and detailed productand firm-level import data, we match the precise occupation description of each worker to the equipment imported by their employers. We find that machine operators working on imported machines earn 16 percent more than those working on domestic machines. Estimating a structural assignment model of heterogenous workers and machines, we conclude that about one third of this wage gap is due to the higher returns to skill on imported machines, and two thirds are due to the higher skill of imported machine operators. Our structural estimates also suggest that imported machines contributed substantially to the increase in wage inequality in Hungary. Our results highlight a novel mechanism of skill-biased technical change.