Israel’s Tech Sector Grows, but Demand Still Outstrips Supply, Says Report

The Israeli tech sector employed 321,000 people in 2019, accounting for 9.2% of all people in the Israeli job market, according to a Wednesday report published by government tech investment arm the Israel Innovation Authority (IIA) and Start-Up Nation Central (SNC), a Tel Aviv-based non-profit organization managing a database of Israeli tech companies. While this constitutes an 8% increase year-over-year, the demand for skilled workers in the sector has increased as well, with 18,500 tech positions open, an 8% jump from July 2018. This builds on the trend of technologization seen in the industry in recent years, with seven out of every 10 employees in the sector holding a tech position in 2019, compared to an even split in 2012.

There are several possible explanations for the increase in the percentage of tech positions in the sector, according to the report. One is that Israeli companies are relocating their headquarters overseas at the behest of their investors, leaving only their research and development centers in the country. Another is the growing number of multinationals opening R&D outposts in Israel in the last decade, which naturally employ mainly skilled tech workers.

However, the report’s authors state that while there are, overall, more multinational R&D centers being opened in Israel than closed, the trend has slowed, perhaps due to a rising difficulty in finding local employees as the number of Israeli companies that choose to grow locally instead of being acquired increases. Israel currently has 30 home-grown unicorns, four of which only joined the list in 2019. This is another hint of the maturation of the domestic tech industry, alongside the significant decline seen in the number of early stage investment rounds.

As demand for skilled tech manpower in Israel has increased faster than people joined the workpool, the competition resulted in a continuous increase in wages—salaries in the sector increased by 27% over the past six years, compared to 15% for the rest of the market. These widening economic gaps require action for two reasons, according to the report’s authors. The first is that without increasing the employee pool, the tech sector’s growth will halt. The second is that unless the sector becomes less homogenous and more inclusive of minority groups, the sector will separate from the rest of Israeli industry and society even further, in essence creating an economy within an economy in Israel.

The number of women employed in technological positions in the sector has stayed relatively fixed at 22% for a few years now, according to the report. Ultra-Orthodox Jewish and Arab employees comprised nearly 14% of new employees between 2017 and 2018, but they still account for only 5% of employees in the sector. The authors suggest several ways the tech sector’s workpool could be increased.

One way, which is already in motion, is non-academic government training programs that focus on retraining people that have high abilities but no relevant academic background in fields such as data science and programming. Another program that is currently seeing its first pilot offers funding for the recruitment and training of college graduates or practical engineers with no practical experience in development. Other state-supported programs offer financial incentive to companies who recruit outside of Israel’s center—where 73% of companies are located—or to programs that train people from the ultra-Orthodox and Arab communities for tech positions.

The report’s authors caution that the most favored method for employee recruitment in the sector—the referral method—as well as the preference for only recruiting university graduates or unit 8200 veterans, is no longer enough to meet the rising demand.

The report uses data from Israel’s Central Bureau of Statistics (CBS), IIA and SNC, and the Planning and Budgeting Committee at the Council for Higher Education. It also relies on a survey sent to a sample of Israeli tech companies in mid-2019, which between them account for approximately a third of employees in the sector.