2022-2023 Human Capital Report


Israel Innovation Authority and SNPI Policy Institute publish the 2022-2023 Human Capital Report update for the high-tech sector:

Following global slowdown, high-tech moved from record growth to a complete stand-still in 2022: a 70% increase in layoffs during the second half of 2022 compared to same period of 2021; small companies and non-technology employees affected most severely; companies chose to hire more junior employees

Negative trend which started with the global slowdown at the end of 2022 worsened in the first quarter of 2023;

25% of the companies plan on laying off employees and 25% of the companies reported halting recruitment

Effects of the 2022 global recession:

  • In 2022, the number of employees in the High-Tech sector increased by just 7.4%, a significant decrease compared to 12% in 2021.
  • 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)

CEO of the Israel Innovation Authority, Dror Bin: “This report paints a complex situation of a drastic shift in high-tech employment trends. Similar to past economic slowdowns, when the volume of private funding and public companies’ valuation drop, so do the rates of high-tech employment. The 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: 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, forego 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. The human capital is the driving force behind Israel’s technological leadership, and unlike other ecosystems that draw talents from around the world, 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 a 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.”

The most significant challenge to the High-Tech sector posed by the global slowdown, is evident even in data from March 2023 that reflects the distress faced by the industry. 
In addition, the report notes that despite initial indications of global recovery in the High-Tech sector, it is unclear whether the global recovery of multinational companies would serve to strengthen the Israeli High-Tech job market.

The main findings from the report are as follows: 

  • A significant decrease in the High-Tech sector’s annual growth rate. In 2022, the number of employees in the High-Tech industry grew by just 7.4%, a significant decrease compared to 12% in 2021.
  • Entry into a slowdown in the second half of 2022. The growth rate consistently declined throughout the year and in the second half of 2022, the number of employees in the High-Tech industry grew by about 1.3%, a dramatically low rate compared to previous years. In the last quarter, it decreased to a negative level of -0.2%.
  • Increase in layoffs, decrease in the resignation rate. The layoff rate in the second half of 2022 was 4.4%, an increase of about 70% compared to the same period in 2021 (2.6%). However, this rate is similar to the multi-year average. Additionally, the voluntary resignation rate in the second half of 2022 was 4.7%, lower than the previous year’s rate of 10.1%. This rate is also similar to the multi-year average.
  • Demand for employees cut in half: The number of open positions in the High-Tech sector at the end of 2022 stood at around 17,000, approximately half the figure reported in April of the same year (32,900).
  • 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.
  • Small companies were among those most affected. The report noted that 70% of companies employing up to 10 employees (mostly startups) maintained stability or reduced their workforce. Stability and especially reduction often indicate business difficulties for these companies, which are mostly in a state of “growth or decline”.
  • Increase in the relative proportion of R&D employees, reduction in support staff. There was a decrease in the number of non-R&D employees in companies with over 50 employees, which represent the main employers for these workers. Indications suggest that companies prioritized preserving their core R&D staff. One out of every three medium-sized companies and one out of every five large companies only laid off non-R&D employees.
  • Increase in the relative proportion of junior employees in R&D positions. The economic slowdown in the High-Tech sector actually presented an opportunity for new employees to join. It seems that many companies chose to continue their development work with less experienced employees, even at the cost of lower productivity. The proportion of junior employees in R&D positions increased in the second half, both within the general workforce and among R&D employees.
  • Indications of worsening conditions in the first quarter of 2023. The report noted that 25% of companies have completely halted their recruitments, a similar percentage reported plans for continued layoffs, with one-third of them planning to lay off more than 5% of their workforce. Interestingly, one-third of the companies do not plan salary updates in 2023, a rate similar to patterns observed in 2020 during the COVID-19 crisis.

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