Israeli startups scramble for workers as skills fail

As the number of high-tech companies grows and multinationals enter the fray, the race is on for good workers

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

A Workey team (Courtesy)
A Workey team (Courtesy)

Limor Kidron has been recruiting engineers and computer programmers in Israel for the past 16 years for companies she has worked for. But over the past three years this task seems to have become harder, as the so called Startup Nation is failing to produce enough new skilled workers, the number of high tech companies has almost doubled in a decade, and tech giants from Google to Apple are snapping workers up for their research and development centers in Israel.

“Companies are fighting over each developer,” Kidron, who now works as a VP in human relations at Hola, a Netanya, Israel-based provider of a free virtual private network service (VPN). “This creates a situation in which you need to make an extra effort to recruit good developers to your company.”

Hola, which said in January it was willing to pay $7,000 for referrals for successful hires, has, over the past three years started employing workers outside of Israel to fuel its growth. Today, said Kidron, around 60 percent of its engineers and developers are based out of Israel, in Ukraine, Norway and Canada. Just three years ago all of its developers and engineers were based in Israel.

This shortage of workers is a major threat to the nation’s high tech industry, which has been a key engine fueling Israel’s economy, industry leaders, analysts and government officials have warned.

The Finance Ministry warned in February that Israel’s high tech sector has already ceased to be the nation’s growth engine as fewer students graduate with science degrees. In the years between 1998 and 2009 the high-tech sector, fueled by the arrival of highly educated new immigrants from the former Soviet Union, grew faster than the gross domestic product of the country nearly every year. In the five years since, however, it overtook national growth just once, in 2012, the report shows.

Shortage of engineers

Israel’s high-tech industry will lack more than 10,000 engineers and programmers in the coming decade if the government doesn’t take immediate action to prepare students to meet the shortfall, the Ministry of Economy and Industry’s chief scientist Avi Hasson warned in a report in June.

Economy Ministry Chief Scientist Avi Hasson (Photo credit: Courtesy)
Economy Ministry Chief Scientist Avi Hasson (Photo credit: Courtesy)

A lack of skilled human resources is a central obstacle for growth, both for startups and for more established Israeli technology companies, Hasson said. The shortage in the number of engineers is the result of a decline in the share of Israelis graduating in the sciences, which fell from 13 percent in 2004 to 8.7% in 2014. In addition, the country is spending less on research and development, as a percentage of its GDP, than in previous years, he said.

This lack of a pool of skilled workers has been highlighted even more by the burst of activity in Israel’s high tech sector, which has almost doubled the number of companies operating locally in the past decade. Workers often also want the challenge of starting their own company rather than joining an existing one and successful entrepreneurs tend to return to the market with new ventures.

The number of active high tech companies operating in Israel has jumped from 3,781 in 2006 to 7,400 in mid-2016, figures compiled by Tel Aviv based IVC Research Center, which tracks the industry, show.

In addition, companies from Google to Apple, Deutsche Telecom and Bosch have all set up research and development centers in Israel, with 278 multinational companies operating a total of 327 R&D centers around the country today, compared with about 250 such centers three years ago, IVC data shows. This number could even rise if Israel cuts tax rates for these companies, as the Finance Ministry said earlier this month.

“There is more demand for workers than supply; it is a workers’ market,” said Danny Shteinberg, marketing VP at Workey, which has developed a job search engine for Israeli startups. “Job seekers can be picky with their choices, they can choose to work close to home and change jobs often.”

On average, he said, according to Workey data, in the past five years salaries for these skilled workers have risen around 10 percent, and workers tend to change jobs on average every 20 months.

The increased competition for workers is making it harder for companies operating in fields that are not considered “hot” or situated in geographically inconvenient locations to find good workers,said Elik Ber, CEO of Meidata, a Tel Aviv-based market research firm. “Defense companies operating outside of Tel Aviv for example are having a tougher time finding qualified workers because they don’t have the appeal of Google, for example.”

Indeed, Gett, a ridesharing startup that is eyeing the driverless car space, believes it will manage to attract the number of workers it needs because of the field in which it operates. Gett has started a recruitment campaign to double the amount of workers at its development center in Tel Aviv, by adding 80 workers to its ranks, after getting a $300 million investment injection from German carmaker Volkswagen in May.

Gett's Anat Asaf, global recruitment manager (Courtesy)
Gett’s Anat Asaf, global recruitment manager (Courtesy)

“We are looking for very experienced workers with specific skills in the fields of big data, artificial intelligence, predictive algorithms, to work together to create the technology base for driverless cars,” Anat Asaf, global recruitment manager at Gett said by phone. There is competition vis-a-vis other companies for skilled workers, she said. Driverless cars, however, is “a hot field and this allows us to draw A-talent to us. It is not easy, but we are in a strong situation.”

Israel’s government has already started programs to outsmart the shortage. Naftali Bennet, the education minister and a former high-tech entrepreneur, has set up a plan to increase the number of students studying mathematics and there are calls on the government to speed up plans to lure more women, ultra-Orthodox and Arab citizens to the sector through training programs.

Fighting back

In addition, Israel may also grant work visas to allow foreign engineers to work in Israel. An interministerial panel is set to recommend allowing companies to bring in in skilled workers through special two-year visas that could also be extended, financial website Globes reported earlier this month.

“Bringing foreign workers to Israel is not the right solution,” said Emil Koifman, chairman of the Society of Electrical and Electronics Engineers in Israel. “We have enough young workers here. We must just increase their education and skills. In addition, we must make sure we continue to train those engineers that at the age of 45 find themselves without the skills required for the ever-changing technologies.”

Hola's Limor Kidron (Courtesy)
Hola’s Limor Kidron (Courtesy)

Meanwhile, companies are doing what they can to find new pools of workers. Nasdaq listed Mellanox Technologies Ltd. has hired four programmers in Gaza to join those it already employs in the West Bank, according to a Reuters report. Gett is looking into the option of bringing back to the homeland Israeli workers living abroad, while Hola is planning to lure computer science students by offering them flexible hours and the option to work in their field while continuing their studies.

“The idea is to build up the next generation of programmers,” Kidron said.

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