Human Capital Report 2018

16/12/2018

Start-Up Nation Central and The Israel Innovation Authority Present the 2018 Israeli Innovation Industry Human Capital Report, highlighting 15,000 open positions in Israeli tech innovation sector.

Main findings of the report:

The Israeli tech innovation sector has 15,000 open positions
This report aims to understand the degree of the imbalance between the demand for tech talent and the supply in Israel. It does so by analyzing the results of a survey and by using auxiliary data. This year 362 companies responded to our survey. Together they employ over 82,000 people, which is almost 40% of the Israeli tech innovation sector as defined by Start-Up Nation Finder that tracks innovation companies with their own technology product.

As of July 2018, we estimate the number of open tech positions in the tech innovation sector to be around 15,000. This does not include demand for tech workers from outside of the tech innovation sector, for example IT services companies and telecommunications firms, which are defined as part of the tech sector by the Central Bureau of Statistics (CBS).
The largest number of open positions (31%) are in software engineering specialties like DevOps, Front-end and Back-end. We also detect shortages in Data Science, Machine Learning, and AI.
The largest number of openings are in growing companies of 11-50 employees, and in the largest companies of over 500 employees.

The industry is growing faster than the supply of talent

Over the past five years, the number of people employed in the Israeli tech sector, as defined by the CBS, has grown from 240,000 to 280,000, but their percentage in the labor force is stagnant at around 8% of the total workforce. Despite the increase, there is a clear imbalance between supply and demand in the market, given a three-fold increase in Venture Capital financing during the same period as well as record numbers of multinational corporations entering the ecosystem and hiring Israeli talent.
The number of computer science and engineering university graduates has remained nearly flat for about a decade until 2016, implying that the growth of the demand for tech talent is outstripping the growth of supply, creating a growing imbalance. In 2017, the CHE launched a new program to increase graduates by 40% within 5 years.
The result is an employees’ market: Wages in the tech sector continue to rise faster than in the rest of the economy – Israel is the world leader in terms of the ratio of the tech sector earnings to earnings in the rest of the economy: 2.5.
The last 5 years are characterized by a higher rate of voluntary resignations, together with a notable decrease in dismissal rates in the tech sector, both demonstrating the continuing realization of the shortage by employers and employees.

Offshoring is a near term solution for many companies (large and mid- size)

Israeli technology companies, looking for talent and cost reduction, are increasingly establishing offshore R&D facilities in locations that offer quality talent at a reasonable cost. Every fourth company in our survey reports having an overseas development team, Ukraine being the most favored location.
Half of them established their offshore operation in the last two years. Those companies employ about 20% of their entire workforce overseas. We see offshoring as a positive outcome in the near term, as it allows Israeli start-ups to grow, stay in Israel, and keep costs in check.

Pools of untapped talent

Women

Total female headcount in the Israeli tech industry is at 30% (including non-tech professions like marketing, HR and business development), but women comprise only 23% of core tech professions like software engineers and, in our survey, only 16% of tech management.
The potential of women in tech is probably double these numbers, as girls comprise almost half of all students studying advanced math in high school.
Similarly, Ultra-Orthodox women began studying software engineering at an associate degree level less than a decade ago and today there are nearly 700 new graduates every year. They require additional training and bridging of cultural gaps to become fully integrated into the core of the industry.
In 2018, the Ministry of Labor launched a joint venture with SheCodes to offer free coding training for all women.

Israeli Arabs

Another pool of talent is the 2,000+ Arab students of tech studies that are gradually entering the tech sector. We see a major opportunity to get them into core technology jobs.
There has been a dramatic trend reversal in recent years: In 2016 alone, there were more Arab tech-relevant students than all the Arab students over the previous 30 years (1985-2014): 2,222 v. 1,598 respectively.
Today, Israeli Arabs comprise about 11% of all high-tech related degrees in academia, thus indicating a substantial potential for further growth as their share of the population is almost double.
We can see this trend already materializing, as 18% of all Computer Science students in universities are Israeli Arab.
Still, two-thirds of Israeli tech companies in our survey (most of them very young startups with less than 50 employees) report not having a single Arab tech employee. When Israeli tech companies of all sizes do employ Israeli Arabs, these make up around 3% of their headcount.
Larger firms, some of them multinational corporations, employ significantly more Israeli Arabs – an average of about 8% of their total headcount.
Successful integration requires bridging gaps in soft skills and cultural aspects. The Israeli Government has supported such programs since 2014.

Foreign Tech Experts

The Israeli Government earlier this year took the unprecedented step of establishing a very convenient and rapid process for obtaining a special tech visa, helping recruit experienced professionals. This change is being slowly recognized by the companies, and several dozen have already taken advantage of the new procedure. 46% of the companies in the survey answered that they would consider this option. Another source of talent is Israelis working abroad in tech companies. More than
500 tech professionals return to Israel every year. The Israel Innovation Authority launched a pilot program in 2018 to support their integration into tech companies.

Prof. Eugene Kandel, CEO, Start-Up Nation Central: “The high growth in demand for Israeli innovation, which is good news, exceeds the supply of the human capital the innovation sector needs. The Israeli government, NGOs, and the industry understand the importance of this task, and as a result of their actions the supply of human capital has been growing over the last few years. Still, this report shows that even more rapid growth in human capital supply is required so that the sector can grow and satisfy global demand.”

Aharon Aharon, CEO, Israel Innovation Authority: “The high-tech industry is undergoing rapid growth and is unable to ‘catch up’ with the demand for skilled tech talent. The Israeli government has recently implemented a national program to expand the pool of high tech talent, including increasing the number of university and non-academic quality program graduates, working to realize the potential of underrepresented populations in the high tech sector such as women, Arabs and the Ultra-Orthodox, and facilitating the integration of returning Israelis with tech experience, as well as promoting the arrival of foreign experts.”