"The number of high-tech employees has remained unchanged for a decade already, and we can't seem to break through this ceiling," says Aharon Aharon, CEO of the Israel Innovation Authority (formerly the Office of the Chief Scientist) in the Ministry of Economy and Industry. He says that this is the most important conclusion of the Innovation Authority's annual report being published today. In addition to the figures from the past, the report also includes an operational plan for increasing the number of employees in the Israeli technology industry.
"We want to double the proportion of high-tech employees to 15% of all employees in Israel," Aharon declares. "This addition won't come from a single revolutionary measures; it requires a batch of small actions in diverse areas."
"Globes": Why is it important to channel people to high tech?
Aharon: "On the average, an employee in high tech earns double the salary in other professions. If we channel more employees to the sector, more Israelis will earn higher salaries, and the surge in high-tech wages will also be halted. High tech wages have risen 38% in the past decade, and when you include the change in the shekel-dollar exchange rate, the increase is 50% in dollar terms."
Why should we stop the increase in salaries?
"It's essential in order to keep Israel competitive in high tech. If competition for the existing workers intensifies and salaries rise, we'll get close to a situation in which the Israeli high-tech worker will be among the most expensive in the world. That's bad for the country and for the Israeli high-tech companies, and also for the employees in the long term."
Aharon says that the processes for increasing high-tech employment include strengthening software and communications, plus growth in new areas.
"In software and communications, we're acting together with the government to increase the supply of students in the relevant subjects by 40%. This is an important contribution, but it's not the only thing being done. Together with academic studies, we're planning to establish a 'programming elite' for rapid training in the profession. In the US, 25% of the programmers come from a non-academic track. This barely exists in Israel. The main reason is the quality of the training."
There is a difference in the demand for programmers who came to the profession as a student and the demand for someone who decided to retrain because he did not like his profession or wanted to earn more money.
"It's possible to create very selective programming courses. There are already more selective non-academic courses from which 90% of the graduates get hired at a high salary. It is definitely important to recruit people from the right background. It's a fairly difficult course in the style of the Mamram (the IDF Central Data Processing Unit), which demands commitment and does not accept every applicant. Time has to be devoted to it, and some of the participants will receive a living allowance so that they will have enough time available for it."
Another track is bringing back Israelis from overseas, encouraging immigration, and providing work visas for specialists. Aharon emphasizes that no huge R&D centers with hundreds of programmers from the Far East are planned. "I only wish we could do that, because it would be better for them to be here than there, but the plan right now is for visas for specific professionals, while ensuring that salary does not fall below a certain floor, NIS 21,000, like the average salary in the field, in order to avoid lowering the Israeli programmer's salary."
In the corporate aspect, a measure will be taken aimed at keeping companies in Israel through a tax benefit. "Large companies will pay 6-7% tax, instead of 12%. That's very competitive," Aharon declares.
What about software and communications?
"We're breaking into new circles, both in the population groups employed in high tech (more women, more haredim (ultra-Orthodox Jews), and more workers from the Arab sector), and are also providing support for new sectors, beyond regular high tech."
The fastest growing industries outside the usual high tech industry is the life sciences. "The main barriers are to get through the regulatory process, and to produce and market efficiently. Since the human capital in this field in Israel exists and is good, these two bottlenecks can be solved with capital," Aharon believes. Following the initiative of the government biotech funds and the establishment of the FutuRX biotech incubator, another incubator is planned, plus a track for supporting foreign companies establishing innovation centers in Israel. Foreign entrepreneurs founding startups in Israel will also be supported. In addition to biotechnology and medical equipment, measures to strengthen digital health, agriculture, and food will also be taken.
Another instrument is "injecting innovation" into conventional industry. "Through innovation and R&D processes, we'll bring more companies to high productivity, and the salaries in these companies will approach high-tech salaries," Aharon explains. "As a result of these processes, we have already converted 280 industrial companies fighting to survive in the local market into export and innovation-oriented companies. My background is in production plants, and I think that they are critical for a stable and successful high-tech industry. Iscar Ltd. plants, for example, are high-tech enterprises for all intents and purposes."
But most of the employees there earn low wages.
"I believe that looking a decade ahead, these companies will have fewer poorly paid workers, and not because they'll be driven out of the labor market, but because they will be hired for more sophisticated jobs."
Putting more people into the high-tech circle where salaries are high is a good thing. What will happen to employees who are unsuitable for sophisticated work? Will they be left behind, and will gaps widen?
"We believe that if we increase the proportion of people employed in high tech, the circle of jobs around every such high-tech enterprise will double. Take my family, for example. My children and my wife work in high tech, but they all studied finance or management, not the natural sciences or programming. You can make a living in high tech even if you don’t want to do programming. Data scientists, a new profession for which demand is high, are often people who don't come from a computer background."
Mixed figures in 2016
Together with its vision, the Innovation Authority is also presenting figures about activity in the market. In 2016, there was a drop for the first time in the "general high tech index" integrating indices relating to the success of young high-tech companies (such as the pace at which companies are founded and financing rounds) with indices relating to mature companies (exports, industry). The decline led the report's authors to ask whether we have reached a ceiling in the high-tech industry's performance, and to the conclusion that this could be combated by increasing the supply of trained personnel.
If the aggregate high-tech index is broken down into sub-indices, some of them rose considerably. 2016 was again a peak year in capital raising by Israeli startups, which raised a total of $4.8 billion, while venture capital investments in the US were in retreat for the first time, following five straight years of growth. In addition, the financing rounds themselves were larger than the norm: the average financing round totaled $7.2 million, 20% more than the average over the past five years.
The average amount raised in the advanced stages grew from $20 million in 2015 to $25 million in 2016. 2017 began at the same rate, with $2.3 billion raised in the first half of the year, 75% of it in deals in the intermediate-to-late stages, with an average of $10 million.
The problem was in the volume of exits, which declined slightly to $3.5 billion (although if several partially Israeli exits are included, the year sets another record of $10 billion). This a very volatile figure, because one big exit can change the picture in either direction. 2017 is thus emerging again as a peak year in exits, mainly due to the Mobileye deal.
In the mature companies index, many parameters have declined from their 2015 peak. The number and value of private capital deals both fell and the number of secondary offerings dropped, as did their value. There are nevertheless positive aspects: the volume of acquisitions by Israeli companies reached $8.5 billion, a new record. The proportion of people employed in high the returned to its previous high of 8.3%, while high-tech exports totaled $43 billion, 5% more than in the preceding year.
One interesting figure in the report concerns employment of older people in high tech. While a graduate of an academic course in high tech in his or her 20s will almost certainly find work, the chances of finding a job at age 40 are only 90%, while at age 60, 20% of professionals in the industry are unable to find work, despite the shortage of employees.
Older employees are also laid off more frequently. 85% of those over 45 who participated in a survey of veteran high-tech workers left their last job involuntarily, compared with only 67% of those under 45. People in high tech in their 50s express anxiety about their professional future. On a scale of 1 to 5, they select an anxiety level of 3, compared with 2.5 for 30 year-olds. Incidentally, this anxiety occurs until age 50, and then declines, probably because employees working at age 50 believe that they will be able to last until they reach pension age or save enough money to face the possibility of early retirement.
As for the Innovation Center's activity, the survey reveals that 650 companies received an average of NIS 1.5 million per company. The software and information sectors received 28% of the grants and biotechnology 18%, but if the medical equipment and pharma sectors are added, the biotechnology sector has the biggest share of the grants - 35%. Communications received 17% of the grants, and electronic components 11%.
Published by Globes [online], Israel Business News - www.globes-online.com - on October 2, 2017
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