For the first time since 2008 the number of high-tech employees in Israel has shrunk
"Since the fourth quarter of 2022, we have seen a sharp decline in Israeli high-tech. We will see a continuation of the downward trend in the coming quarters as well,” said Dror Bin, CEO of the Israel Innovation Authority
A new report by the Israel Innovation Authority and SNPI Policy Institute analyzing 2022 and the first quarter of 2023 has shown a sharp decrease in the demand for high-tech employees. According to the 2022-2023 Human Capital Report, which included a survey of 305 tech companies, the number of employees in the high-tech sector in Israel increased by just 7.4% in 2022, a significant decrease compared to 12% in 2021. The number of open positions was halved: 17,000 by the end of the year, compared to about 33,000 in April 2022
The report also found an increase in layoffs and a decrease in the resignation rate. The layoff rate in the second half of 2022 was 4.4%, an increase of about 70% compared to the same period in 2021 (2.6%). However, this rate is similar to the multi-year average. Additionally, the voluntary resignation rate in the second half of 2022 was 4.7%, lower than the previous year's rate of 10.1%. This rate is also similar to the multi-year average.
In all, the high-tech industry grew by about 1.3%, a dramatically low rate compared to previous years. In the last quarter, it decreased by 0.2%, meaning that for the first time since 2008, the number of high-tech employees shrunk (deducting the unpaid leave quarter during Covid-19).
As was the case in previous crises, it is the smaller companies that suffered the biggest hit. The report noted that 70% of companies employing up to 10 employees (mostly startups) maintained stability or reduced their workforce. Stability and especially reduction often indicate business difficulties for these companies, which are mostly in a state of “growth or decline”.
The report also revealed an increase in the relative proportion of R&D employees and a reduction in support staff. There was a decrease in the number of non-R&D employees in companies with over 50 employees, which represent the main employers for these workers. Indications suggest that companies prioritized preserving their core R&D staff. One out of every three medium-sized companies and one out of every five large companies only laid off non-R&D employees.
"Since the fourth quarter of 2022, we have seen a sharp decline in Israeli high-tech,” said Dror Bin, CEO of the Israel Innovation Authority. “Nasdaq has plunged in the past year, capital raising has plummeted and employment is following suit. We will see a continuation of the downward trend in the coming quarters as well. High-tech companies are reporting continued layoffs, a significant reduction in hiring, and no salary increases."
Interestingly, the report showed an increase in the relative proportion of junior employees in R&D positions. It seems that many companies chose to continue their development work with less experienced employees, even at the cost of lower productivity. The proportion of junior employees in R&D positions increased in the second half, both within the general workforce and among R&D employees.
"As an employer in 2021, I knew that the junior employer requires a lot of resources for training and that after six months someone else would snatch them," added Bin. "But in the last year resignations dropped from a level of 13% to a level of 4% and the chance of a junior leaving is small, so it's worth it to train them. You get an employee at a lower cost that is unlikely to leave."
Uri Gabai, CEO of the SNPI Policy Institute, said: “During the past few months, we have forewarned of the worrisome combination of the effects of global recession on Israeli high-tech, which are clearly evident in this report – together with the ramifications of political and social instability in Israel. This combination resulted in companies halting recruitment, foregoing salary updates, and seeing a high rate of employee layoffs. There is concern that should this negative trend continue, it will jeopardize the attractiveness and leadership of Israeli high-tech. The human capital is the driving force behind Israel's technological leadership, and unlike other ecosystems that draw talents from around the world, Israeli high-tech relies almost entirely on local talent and educational institutions. We must do our utmost to preserve the human capital within Israel, even as we hope for the impending end of the storm we are currently experiencing.”