A new report from the Israel Innovation Authority and SNPI Policy Institute on the 2022-2023 Human Capital Report update for the high-tech sector in Israel shows that the country has seen a considerable slowdown in growth since its world-leading growth rates after the end of the Covid crisis. This is attributed to global trends and an ongoing financial crisis coupled with high inflation.
On the bright side, there will still be growth – just less – and there are some sectors of Israel Startup Nation bucking the trends.
The points of the report show that in Israel:
In 2022, the number of employees in the high-tech sector increased by just
7.4%, a significant decrease compared to 12% in 2021.
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The number of open positions was halved: 17,000 by the end of the year, compared to about 33,000 in April 2022
The proportion of junior employees in R&D positions increased to 26% in the second half of 2022, compared to 22% in 2021.
In the last quarter of 2022, there was a decrease of 0.7% in the number of employees in domestic companies compared to a growth of 1.3% in multinational companies.
For the first time since 2008 the number of high-tech employees shrunk by
0.2% (deducting the unpaid leave quarter during COVID-19).
But on the Bright side:
Despite the slowdown, the Agri-FoodTech and Cleantech sectors stood out in terms of growth rate. All sectors experienced a decline in growth rate in the second half of 2022. However, on an annual level, despite not being software-oriented compared to most leading sectors in Israeli High-tech, this sector ranked second in annual growth rate for the second consecutive year.
Multinational companies maintained stability, unlike local companies: Multinational companies showed quarterly growth rates of 1%-3%. In contrast, the quarterly growth rate for local companies dropped from 4% in the first quarter to a negative figure of -0.7% in the fourth quarter. Multinational companies also laid off fewer employees (2% of the total workforce) compared to local companies (4.9%). They also had fewer voluntary departures.
CEO of the Israel Innovation Authority Dror Bin said that the report, in his opinion, paints a complex situation of a drastic shift in high-tech employment trends.
Comparing this to past economic slowdowns, Bin explained, “When the volume of private funding and public companies’ valuation drop, so do the rates of high-tech employment. Israeli high-tech is our most important economic resource and the trends described in this report are not conducive to the continued rapid development of the Israeli economy. I believe that such fluctuation in the economy is certainly something we have experienced in the past, however, we must make sure that we are doing our utmost to ensure the high-tech sector comes out of this crisis strong, as we did in the past.”
Uri Gabai, CEO of the SNPI Policy Institute, added, “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 a high rate of employees layoffs. There is concern that should this negative trend continue, it will jeopardize the attractiveness and leadership of Israeli high-tech.
Gabai went on to say that human capital is the driving force behind Israel’s technological leadership. Distinguishing it from other nations that draw talents from around the world, he said 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.”
After two years of a tide that began in mid-2020, the Israeli high-tech industry entered a period of slowdown in mid-2022, which has intensified in recent months. The Human Capital report reflects the global economic slowdown that began in the second half of 2021 with rising inflation worldwide and downturns in financial markets. The global economic slowdown led to a decrease in the growth rate of human capital in the high-tech sector and resulted in negative growth in the number of employees. The transition from the peak period of 2022 to a global slowdown shifted the industry from a “job seekers’ market” to an “employers’ market.”