The Israel Innovation Authority on Tuesday issued its report, stating “The high-tech has become critical for the growth and prosperity of the Israeli economy, and the State of Israel needs, especially during times of economic slowdown, to preserve and nurture this national resource in the face of increasing international competition.”
The high-tech industry is the fastest-growing sector in the economy, with the highest productivity and the most significant contribution to the economy. Currently, about 14% of Israeli citizens work in technological and non-technological high-tech professions. The salaries in the tech sector are nearly three times higher than the rest of the economy, and job satisfaction in high-tech is twice that of other professions in the Israeli economy.
According to the report, since the beginning of the year, a change in trend has been observed in the recruitment of employees for Israeli high-tech companies, demonstrated by employee layoffs, which may impact the entire Israeli economy after years of growth in the number of employees in the industry. Since 2023, the crisis in the high-tech sector has deepened: not only were fewer positions opened by companies for recruitment, as was the case in the second half of 2022, but the increased layoffs led to a reduction in the number of employees in the industry. In the first quarter of 2023, the number of employees in high-tech services decreased by 2,250, and in April, it further declined by approximately 3,400 individuals.
Here are a few tidbits from the report:
• In the past decade, the high-tech sector has become the largest and fastest-growing industry in the Israeli economy. It is responsible for the largest share of exports from Israel, with the highest growth rate in the number of employees and the fastest increase in wages.
• Within a decade, the high-tech sector has transformed from one of the fastest-growing industries to the largest in terms of employment. From 2012 to early 2023, the average annual growth rate in the number of high-tech employees was 6.3%, compared to 2.2% for the overall economy. In other words, the high-tech sector grew at a rate three times faster than the general workforce.
• In 2022, the high-tech sector accounted for 18.1% of Israel’s GDP, making it the largest sector in terms of economic output. The output of the high-tech sector grew more than twofold within a decade, reaching 290 billion shekels in 2022.
• Most of the employment growth in the high-tech sector in recent years has been driven by technological roles rather than non-technological roles.
• Wage gaps in Israel continue to widen, with the average salary in the high-tech sector standing at 28,385 shekels in 2022 – more than 2.7 times higher than the average salary in the rest of the economy (10,452 shekels). Since 2012, the salaries of high-tech employees have increased by 9,465 shekels, compared to an increase of 2,290 shekels for employees in other sectors.
• Labor productivity in the high-tech sector, calculated as the output per hour worked by an employee, stood at 337 shekels per hour in 2022 – nearly twice the productivity per hour in the overall economy (178 shekels). However, in the financial and insurance services sector, as well as the electricity, water, sewage, and waste management services, the productivity of employees is higher than in the high-tech sector. 91% of R&D in Israel is carried out by the private sector, the highest percentage among OECD countries. Israel has the lowest percentage of government funding for R&D among OECD countries, with only 9% of national R&D expenditure funded by the government.
• According to OECD data, Israel is the only country among the organization’s member states where more than 50% of R&D is funded by sources outside the country. Specifically, the weight of foreign capital in Israeli venture capital in the years 2022-2021 is at least 75%-80%.
• Investments in Israeli startups have grown more than fivefold from 2013 to early 2023, with a total of around $95 billion raised during these years. This places Israeli innovation in sixth place globally in terms of capital raised for startups during the period examined.
• Since the second half of 2022, there has been a decline in the volume of investments in Israel. In total, in 2022, investments in startups in Israel decreased by almost half (45%) compared to the previous year, amounting to $15.9 billion. The main decline in capital raising in 2022 resulted from a decrease in large-scale investments of over $50 million, intended to support the continued growth of mature startups in Israel.
• Preliminary data regarding startup investments in 2023 indicate that the downward trend in investments is continuing in the first and second quarters of the year (the data is still subject to updating). Unless a significant reversal occurs, it appears that the decline in investments in Israeli startups is expected to persist in the current year compared to the growth trend observed in recent years. If this assessment materializes, it serves as a warning sign for the Israeli high-tech industry that requires appropriate preparedness.
• Compared to other hubs worldwide, startup investments in Israel decreased by over 70% in the first quarter of the year compared to the corresponding quarter last year. This is a sharper decline than in other examined locations.
• Since the beginning of the year, Israeli technology companies have shown negative returns compared to technology companies traded on the NASDAQ. Traded companies in Israel have been “punished” by the market with particularly low returns. In the first quarter of 2023, the return on the index of the top 100 technology companies traded on NASDAQ was close to 24%, while the Tel Aviv Technology Index experienced a 1% decline during the same period. This means that while NASDAQ has begun to recover and technology stocks have started to rise, there is no similar trend in Tel Aviv. Additionally, the stock return of Israeli companies on NASDAQ in the first quarter was 10.8% – a higher return than that of traded technology companies in Tel Aviv, but lower than that of the NASDAQ Technology 100 Index.
