The 2020 Human Capital Report
Israel’s high-tech sector remained stable with high demand for technological employees. However, a chronic shortage in skilled human capital is still evident.
Despite the coronavirus crisis, Israel’s high-tech sector remained stable with high demand for technological employees. 13,000 open positions were recorded in December 2020 – a 30% decline from July 2019 – but still a high figure. This attests to a chronic shortage of experienced technological employees. The report indicates that smaller companies and hardware-based sectors were the most negatively affected by the crisis. In addition, the positive trend of integrating underrepresented populations in the high-tech sector – women, and members of the Arab and Ultra-Orthodox communities – halted over the past year.
Despite the coronavirus pandemic, the number of high-tech employees rose by a moderate 0.6% throughout the year, to an annual average of 334,000 people. A relative decline in demand for employees was recorded, partly explained by a significant drop in the rate of voluntary resignations.
However, a chronic shortage in skilled human capital is still evident, with about 60% of companies reporting difficulties in recruiting employees for R&D positions and 13,000 estimated open tech positions as of December 2020.
The coronavirus crisis impaired the integration of underrepresented populations in the high-tech sector, as demonstrated by the 10 percentage point decrease in the proportion of women among high-tech employees from the Arab sector. However, the potential for their integration is still high given that the number of female Arab undergraduates in high-tech studies more than tripled between 2012 and 2020.
Key findings from the report:
- High-tech employment demonstrated resilience during a highly challenging year. Despite the coronavirus pandemic, the number of high-tech employees increased in 2020 by a moderate rate of 0.6%. The impact of the pandemic was severely felt in Q2 when many employees were sent on unpaid leave of absence, yet a recovery was evident already in the subsequent quarter.
- Employee turnover during a year of uncertainty: fewer voluntary resignations; more dismissals. The rate of voluntary resignations was the lowest in the last seven years, falling by more than three percentage points compared to 2019. The rate of layoffs increased by one percentage point compared to last year but did not significantly exceed the average figure from recent years. It should be noted that this figure is biased downward, both because the survey data does not account for companies that closed and laid off all their employees (survival bias) and because there is an over-sampling of large companies (that were less affected by the crisis).
- We are still in an “employee’s market” when it comes to the core of high-tech – R&D. Despite the coronavirus crisis, there is still an acute shortage of technological employees. December 2020 saw 13,000 open technological positions, a 30% decline from the July 2019 estimate. Yet 60% of the companies continue to report difficulties recruiting research & development employees, regardless of the reported level of damage caused by the coronavirus pandemic.
- The impact of the crisis was not uniform across the Israeli high-tech ecosystem:
- Smaller companies were impacted the most: over one-third of the smaller companies (1-10 employees) reported being ”severely affected” by the crisis. Smaller companies 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.
- Examining the data from a technological sector perspective indicates an acceleration of digital transformation following the crisis and the strengthening of software-based sectors. The accelerated digitization boosted by the crisis at the expense of of physical activities was reflected in Israeli high-tech employment figures: the three 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. The increased demand for solutions related to the health crisis was evident in the employee turnover: biomed, medical, and medical device companies showed signs of being an “employee’s market,” becoming the only sector with increased voluntary resignation paired with a decreased dismissal rate.
- Multinational corporations overcame the crisis more easily: only one-third of them reported being negatively affected by the crisis, in comparison to two-thirds of Israeli-owned companies (this figure is strongly correlated with the larger size of the multinationals). Multinational corporations also tended to engage in the practice of sending employees on unpaid leave of absence, with indications that they tended to replace less experienced employees with more experienced ones throughout the year.
- There are indications that the coronavirus crisis has influenced companies’ willingness to employ junior employees with up to two years of experience. Along with a 24% decrease in the number of juniors employed among companies that reported being “severely affected” by the crisis, there was a 37% increase in the number of juniors in companies that reported being positively affected by the crisis.
- The report shows that 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. Thus, in 2020 there was an alarming decline in the number of women who founded technology companies in Israel; there was stagnation in the ratio of Ultra-Orthodox employees out of all high-tech employees, following five years of continuous increase; and the share of women from the Arab sector out of the overall number of high-tech employees from the Arab sector fell by ten percentage points, from 42% to 32%.
Nonetheless, the potential remains high as the number of undergraduate women from the Arab sector in high-tech studies more than tripled between 2012 and 2020.
Uri Gabai, CO-GM, Start-Up Nation Central:
“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. 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.
The human capital shortage in the high-tech industry remained high even during the global crisis, demonstrating its chronic nature. We expect increased demand for technological solutions which will in turn lead to an increase in demand for employees capable of developing these solutions. The increased demand will not be limited to the high-tech industry; it will also appear in other industries undergoing a digital transformation. The resolution to this chronic shortage can likely be found in systematic, cross-sectoral collaborations which will create widely implementable solutions. Without an extensive integration of women and members of the Arab and Ultra-Orthodox communities into the high-tech industry, Israel’s main growth engine will have no fuel to run on. I hope the post-pandemic normalization will also include resuming the favorable trend of integrating underrepresented populations in the high-tech industry.”
Sagi Dagan, VP, Head of Growth Division, Israel Innovation Authority:
“It would be wrong to conclude that the high-tech industry, which enjoyed relative stability during the coronavirus crisis, needs less state investment and can rely solely on market forces. 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. Another reason for keeping up the investment in technology is that Israeli high-tech stability is also due to the state adopting the right policy and developing the industry to protect Israel’s vital and nearly sole national resource. To keep this resource going, the state needs to be proactive and use a range of creative financing, technological, and human capital solutions concurrently while enabling progressive regulation. These combined measures will ensure the high-tech industry’s position as the driver of the Israeli economy, helping the economy adopt technological advancements and boost productivity. Human capital is a significant barrier to the continued prosperity and leadership of Israeli high-tech. The industry needs engineers and software professionals for research and development, and must support employees who would bring the products and services to the global market as well as talented managers to lead multinational high-tech companies from Israel. Israel’s policymakers should rise to the human capital challenge to ensure Israel maintains its leading position in the 21st century.”