As the coronavirus pandemic wreaked havoc on the Israeli economy, causing a surge in unemployment, the tech sector saw a shortage of professionals, a new report by the Israel Innovation Authority and Start-Up Nation Central says.
According to the Human Capital Report released Thursday, there were 13,000 open positions at the end of December 2020. That figure is 30% lower than the number of available jobs in June 2019, when a previous report was published, showing that even if the tech economy chugged along during the pandemic it did not emerge from it unscathed.
Israel, however, seems to be emerging from the pandemic thanks to a highly successful vaccination drive. This is enabling the economy to get back on track after contracting 2.5% in 2020 due to the pandemic, with enforced social distancing shuttering businesses and economic activities.
Despite a recession, the Israeli economy has proven to be in better shape than other developed nations because its tech industry continued to grow, but not without setbacks.
Some populations, companies and sectors were more hit by the pandemic than others, the report said. Most affected have been women, the ultra-Orthodox and Arab women, who have become more involved in recent years in the nation’s tech bonanza.
“The coronavirus crisis halted the positive trends of recent years regarding the increased integration of women and members of the Arab and ultra-Orthodox communities in high-tech,” the report highlighted.
In 2020 “there was an alarming decline in the number of women who founded technology companies in Israel,” the authors of the report said in a statement.
Women tech founders accounted for just 11% of all 7,544 founders in 2020, compared to 14% in 2019, a peak year. The overall share of women in high-tech though was similar to the previous year, and remained at 28%.
There was stagnation in the ratio of ultra-Orthodox employees out of all high-tech employees, at 3.3%, similar to 2019, following five years of a continuous increase. In 2014 the figure was just over 2%, the data showed.
The share of Arab women out of the overall number of high-tech employees from the Arab sector fell by 10 percentage points, from 42% to 32%. The proportion of Arab employees out of all tech employees declined to 2.3% in 2020, from 3% in 2018 and 2.5% in 2019, the data showed. In 2012, the figure was below 2%.
Arabs account for 21% of the Israeli population, so they are significantly underrepresented in the tech sector.
The coronavirus crisis also affected players in the industry in an uneven manner – with over a third of smaller companies, with one to 10 employees, saying they had been “severely affected by the crisis.” They were more likely to have frozen recruitment, faced a decrease in the number of experienced technological employees, and reduced their demand for tech positions in relation to their workforce, the report said. Multinationals and larger firms on the other hand were able to better survive the crisis.
Despite the pandemic, the number of high-tech employees increased in 2020 by a moderate rate of 0.6%, compared to an average 6% growth annually for the previous seven to eight years. The impact of the pandemic was severely felt in the second quarter of the year, when many employees were sent on unpaid leave of absence, yet a recovery was evident already in the subsequent quarter, the data showed.
There was an annual average of 334,000 people employed in the tech sector in 2020, the report said, accounting for 9.8% of the total workforce, a record level.
The decline in the number of open positions last year was partly a result of the fact that due to the economic uncertainty, a significantly smaller number of workers resigned voluntarily, compared to previous years.
“The fact that the demand of human capital in high-tech remains high even in a year of global crisis suggests that the shortage is chronic,” Eugene Kandel, the CEO of Start-Up Nation Central, said in a preface to the report. As demand for technology increases, as highlighted by the pandemic, this will make the shortage of workers even more acute, and demand for employees capable of developing solutions will increase, both in the high-tech industry and in other industries undergoing digital transformation, he added.
The way to bridge this shortage, he said, is to tap into the underrepresented populations.
“Without the large-scale integration of women, Arabs and the ultra-Orthodox population in high-tech, the primary growth engine of the Israeli economy will be without fuel, and the negative impact will far exceed the tech industry’s relative size in the economy,” Kandel said. “They represent the main potential for increasing the supply of high-tech employees.”
The accelerated digitization fueled by the pandemic was at the expense of physical activities. This was also reflected in Israeli high-tech employment figures: the sectors that demonstrated the highest annual increase in the number of employees (3.5%-5.2%) were software-based. On average, hardware-based sectors, such as telecom and technological solutions for the industrial sector, cut their workforce by approximately 3% in 2020.
“2020 was one of the best years for Israeli high-tech with record capital raising, unprecedented demand for Israeli technologies, and an impressive number of Israeli companies joining the unicorn club,” said Uri Gabai, co-general manager of Start-Up Nation Central. “However, the figures presented in this report indicate that we did not escape the crisis unharmed. Smaller technology companies, in particular, lost experienced technology employees and hired fewer new employees.”
The negative impact of the crisis on startups’ economic activity may hardly be felt in the short term, but may later translate into fewer growth companies that would have employed thousands of employees with high productivity and wage levels, he added.
The “glass ceiling” for the industry is talent, Gabai said in a phone interview. “This is the time for smart, efficient government. We have real problems and without a functional government we have no way to treat the challenges we are facing.”
Israel has emerged from a fourth round of general elections in two years without a clear winner or coalition government in sight.
Israel’s government has to be a “main player” in creating a pool of talent for the industry, by setting out education policies and training programs to prepare the population for jobs of the future, in which there will be no taxi drivers, as cars will be autonomous, and no cashiers, Gabai said. “Low-end jobs are disappearing in front of our eyes…if we don’t train young people into tomorrow’s professions, we’ll have a huge surge of unemployment in the startup nation.”
Even if the tech industry enjoyed relative stability during the coronavirus crisis, it would be wrong to conclude that it “needs less state investment and can rely solely on market forces,” said Sagi Dagan, Vice-President, Head of Growth Division, at the Israel Innovation Authority. “Quite the contrary: countries worldwide realize that investing in civilian research and development is crucial for a thriving economy, high productivity and adoption of technology. These countries are increasing, not decreasing, their investment in technology.”
Human capital is a significant barrier to the continued prosperity and leadership of Israeli high-tech, Dagan said. The labor market in Israel is diverse, and companies that know how to recruit and keep a diverse set of employees “are the ones that will be able to have better growth, be more stable” and more competitive.