Ninety percent of Israeli employees do not work in high-tech industries, and reducing the gap between the old and new economies is essential in forging a unified society, Bank of Israel Governor Karnit Flug said Monday at a business conference in Jerusalem, as she proposed steps to accomplish that goal.
The Israeli economy has about 5,000 startup companies in a range of sectors characterized by “remarkable innovation and dynamism,” she said. This innovation is based on several factors, including the universities that supply the high quality human capital, excellent collaboration between academia and industry, and the developed venture capital industry.
As a result, Israel is a leader in the share of people employed in high-tech industries — approximately 9 percent, more than double the median in OECD countries. Nearly half of those are in the computer programming and consultancy industries; about one-quarter are employed in computer and electronic and optical equipment manufacturing; almost 15 percent are in scientific research and development; and the remainder are in communications services, pharmaceuticals production, and information services.
A large majority of high-tech employees live and work in the center of the country. The other 90 percent works in industries with lower salaries, and it “is notable,” Flug said, how many of those are employed in the low-paying fields of hospitality and food and administration and support.
The wage picture reflects the fact that most poorly paid employees work in industries in which labor productivity is low too. This picture is in line with data that shows that labor productivity in Israel is low compared to other developed countries, “and that gap is not closing,” she said. “Productivity is particularly low in domestic industries, such as those that are not exposed to international competition.”
This situation creates a “dual economy” reflected in various indices of social gaps. The wage gaps in Israel are the highest among advanced economies, and they represent an inequality in skills.
“So what needs to be done now so that all the cars in the train look like the locomotive, even if they don’t necessarily carry the same load?” Flug asked.
The solution lies in a number of steps, she said.
These include improving education and training systems, so that they provide content and skills that allow the effective integration in the labor market of all sections of the population; increasing competition by removing import barriers; encouraging investment in advanced technologies by traditional industries that sell to the domestic market and are exposed to competition from abroad; expanding the encouragement of innovation in “the rest of the economy” through support from the office of the Chief Scientist; easing regulations; and improving physical infrastructure.