1. According to a recent report by the Israel Innovation Authority, a healthy situation has developed in which many Israeli companies are undergoing accelerated growth boosted by large-scale investment. As a result, they need to compete against their Israeli rivals in the tech ecosystem, who are all looking to grow rapidly, as well as multinational companies, which are continually expanding their operations in Israel.
The result is the industry continues to experience a huge demand for trained engineers and developers. According to a study by Start-Up Nation, in cooperation with the Israel Innovation Authority and Zviran Advice and Surveys, there were 15,000 available jobs in the industry in 2018. At the same time, the rate of layoffs in this sector has been consistently declining in recent years, while the proportion of those voluntarily leaving their jobs is rising. This trend highlights the strong demand for personnel.
The solution proposed by the Israel Innovation Authority, for the gap between supply and demand, is to increase the number of students in the technology professions at the universities, open diverse non-academic channels for entering the industry, open channels for recruiting trained personnel overseas, and encouraging the study of science and mathematics in high schools. These efforts are emphasizing the inclusion of women and under-represented groups in the tech industry, especially Arabs and haredim (ultra-Orthodox Jews).
The Israel Innovation Authority says that the number of students learning mathematics at the highest level in high school has doubled in five years, which will have an effect several years from now. 26% of students in the past year studied engineering and computer science. The proportion of Arabs in this group is increasing significantly.
One of the areas in which the demand for trained human capital is especially acute is data science. The global demand for data scientists grew 650% in 2012-2017, and salaries in this sector are particularly high. In Israel, monthly salaries of data scientists are in the NIS 27,000-32,000 range, higher than in many tech jobs with a similar amount of experience.
So demand for employees is strong, salaries are increasing, money is flowing abundantly every year, and there are plans for training human capital in the future. What is the problem? There is a problem. According to Ifat Baron, founder and CEO of itworks, an NGO whose goal is integrating groups isolated from the tech labor market, market failure exists in this area. On the one hand, there is a shortage of 15,000 engineers and coders in the tech industry, while thousands of people are seeking jobs in the field and holders of tech degrees are entering the labor market annually. On the other hand, Israeli tech companies are exporting 20,000 engineering jobs overseas, especially to Ukraine.
2. "In recent years, there has been a sharp increase in the proportion of new students from Arab society. The number has doubled within a decade," say Baron and Moshe Kozlovski, an entrepreneur and investor in tech companies and a member of itworks' board of trustees. "In the past school year, just at the Technion, 600 Arab students out of 1,800 new students began studying, one third of the total, while Israel's Arab minority forms 21% of the population. Most of them are studying tech subjects. This is ostensibly encouraging, because the technology sector needs qualified graduates. When we examined their inclusion in the labor market, however, we found that that the gaps between their being university graduates in tech subjects and their inclusion in the labor market in the technology sector were very wide."
"Arab employees are the growing force in the tech sector, and will provide half of the personnel shortfall within two years. They are the ones who will save the tech industry from stagnation. The tech sector is starved of personnel. Tens of thousands of jobs are being exported from Israel annually. These jobs will never return to Israel. They affect the economy, growth, and jobseekers."
"Globes": You are saying that on the one hand, there is a supply of technology graduates and on the other hand there is demand. Why aren't they meeting? Are the jobs being exported for economic reasons, because they are looking for cheaper personnel, or are technology companies deliberately excluding them?
Baron and Koslovski: "We say that hiring inexperienced young coders and engineers, most of whom are from groups and sectors that have been excluded from Israeli society, is decreasing. These are the facts: 40% of Israeli tech companies hired no junior engineers at all last year. These jobs are being exported out of Israel. It's a vicious circle that makes excluded groups feel doubly excluded, and prevents inexperienced young engineers who did not serve and acquire experience in the army from integrating into the tech market. How exactly will the next generation of experienced Israeli developers be built if a substantial proportion of the junior developers are from Eastern Europe and India?"
Between the lines emerges something that is almost never spoken of. While large companies like Intel, Mellanox, and others have made a point of hiring minority groups, most technology companies, especially medium and small-sized ones, exclude minorities. They prefer the usual tech employee - a veteran of IDF Intelligence Unit 8200 from the central region, who is also paid a higher-than-average salary. Baron and Koslovski are not sure that the hypothesis about cheaper overseas labor is correct. They believe that there are no significant differences in salary costs, especially for excluded groups, which in any case are paid salaries lower than the tech industry average.
Baron and Koslovski are very pessimistic about outsourcing in the technology industry. "Formerly, outsourcing was practiced mainly by large companies. Today, it is used far more extensively, including by small and medium-sized companies and startups. Payments to outsourcing companies in 2018 alone were estimated at over $1 billion, and the figure is expected to increase significantly in the next year or two.
"If the country ignores the situation, 100,000 jobs, 40% of the employees in tech companies in Israel, are liable to be filled by foreign workers in other countries within a few years, putting thousands of Israeli programmers out of work," Baron and Koslovski warn. "This process will also affect employees whose jobs support tech companies, such as catering, cleaning, real estate, communications, etc., because it is known that for every development job, there are at least three jobs supporting development activity."
Why are most of the exported jobs going to Ukraine?
"Ukraine realized the huge potential for the development of outsourcing companies for the Israeli programmers market. An example can be seen in their eagerness to sign a cooperation agreement during the prime minister's visit this week that includes setting up an office in Kiev and Jerusalem to promote and develop tech services. Has Israel realized the destructive potential for the labor market in Israel from making outsourcing to Ukraine a supply of professional personnel for tech companies? We don't think so."
All right, you have presented a problem. What about solutions?
"The state needs to immediately put in practice a policy of incentives for tech companies and startups in Israel to lower the cost of employing local labor and halt the flight of development jobs from Israel. These incentives will pay for themselves through the taxes that the Israeli employees will pay. At the same time, the state should reward and encourage companies to hire candidates from groups less integrated in the tech industry, such as Arabs, haredim, women, people with disabilities, and more with the help of the private sector."
Incentives is a very general word. What incentives exactly are you thinking of?
"We'll give you an example. Just like the state is willing to provide a grant to Intel and subsidize development costs, so that it will build its fab here, the state can help tech companies keep these critical jobs in Israel, or add a criterion of employment diversity as a condition for the financial support provided by the Innovation Center for technological R&D activities - a budget amounting to NIS 2 billion a year."
Published by Globes, Israel business news - en.globes.co.il - on August 26, 2019
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