How Much Can the Israeli Start-Up Nation Continue to Grow?
Author: Gilad Brand Policy Research

 The share of high tech out of total employment in Israel is only about 8%, and it seems that efforts to expand employment in the field are only relevant for a small percentage of the population. Even if these efforts are indeed effective, expanding high tech employment is not expected to have a significant impact on the economy at large.

  • Comparing the skills of workers in Israel and other developed countries, as measured by the OECD’s Basic Skills Survey (PIAAC), shows that the skills of high tech employees are very different from those of workers in other fields. In Israel, the gap between the skills of workers in high tech and workers in the rest of the economy on the survey is almost a complete standard deviation, an exceptionally large gap among the developed countries. Due to differences in skills, the wages of high tech employees are much higher as well – double those of other workers in the economy, and this gap is also exceptionally large. The share of workers employed in high tech was also found to be higher in Israel than in other developed countries, and skilled workers are already integrated into the industry on a large scale. Given all these trends, it seems that efforts to expand employment in high tech are only relevant for a small percentage of the working-age population (about 1%).
  • Due to the large skills gap between high tech and other sectors, it is unlikely that expanding employment in high tech would lead to the spread of advanced knowledge and innovative work methods to other fields to a significant degree. It is also possible that expanding employment in high tech may slow the development of relative advantages in other areas of the economy, where the employment profile is more varied.
  • A high share of the Haredi and Arab Israeli populations report low levels of English proficiency, as opposed to a high level of proficiency reported among high tech employees. As a result of this, and due to low levels of general proficiency among these population groups (as measured by the survey), it seems that there is limited utility in using professional training as a means of integrating them into the high tech industry (thereby narrowing gaps). Most of the potential to expand high tech employment is found among non-Haredi Jews, who already comprise the majority of high tech workers.
  • Israel is characterized by a large presence of workers with low skills, which result in low earning ability. The percentage of Israeli workers whose skills are ranked in the lowest skills level in the OECD (the bottom decile) is about 16% of the adult population, and only about 7% of Israeli workers rank in the highest skills level (top decile). Among the Arab Israeli population, the picture is particularly worrying: about half of the adult Arab Israeli population ranks at the bottom of the OECD skills distribution (the bottom two deciles).
  • The availability of cheap labor makes it less feasible that employers will streamline processes and adopt advanced technologies, and is likely one of the causes of low levels of investment and low productivity in non-high tech industries. Therefore, focusing on raising skill levels specifically among the workers in these industries, through appropriate professional training and by improving the education system (in order to improve the skills of the next generation), may be preferable to efforts to recruit additional highly-skilled workers to move into the high tech field.



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