Analysis |

Israeli High-tech Is Desperate for Workers. Are Foreigners the Solution?

Sami Peretz
Sami Peretz
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Office buildings housing tech companies in the Herzliya Pituach Business Center, central Israel.
Office buildings housing tech companies in the Herzliya Pituach Business Center, central Israel.Credit: Ofer Vaknin
Sami Peretz
Sami Peretz

Politicians suffer from a certain shortness of breath. They know that real achievements come only from working toward the long term, but they have no idea whether they’ll be around then, and they want instant applause.

Maybe it also has to do with us, the media, which expects immediate achievements and lacks the patience to cover long-term developments. The result is that many politicians feel compelled to take short-term steps in an attempt to impress immediately.

Examples abound. Yair Lapid, when he was finance minister in 2013 and 2014, came under pressure to do something about rising housing prices. The experts talked to him about planning, sales of state land, local and district committees, and input prices for construction. But all that bored him, and he emerged with one question: How do I reduce the cost of housing tomorrow?

His answer was to abolish VAT on new dwellings. In other words, instead of addressing the root problems of the housing market – planning, marketing, increasing supply, creating conditions that get contractors to build on a large scale – he simply wanted to press the magic VAT button and lower prices overnight.

Pedestrians in the business center of Ramat Hahayal, near Tel Aviv. Credit: Eyal Toueg

The idea didn’t come to fruition because the government was dissolved by Prime Minister Benjamin Netanyahu. The minister who replaced Lapid, Moshe Kahlon, also sought immediate achievements to tackle the cost of living. He launched the Buyer’s Price program for young families, and lowered the purchase tax of various commodities.

It’s very tempting to lower the cost of living via taxes and subsidies; this avoids exhausting battles and long processes. The problem is that most significant changes in life don’t happen by pressing a button.

Training and retraining efforts

That, however, appears to be the route being taken by the current science minister, Orit Farkash-Hacohen, in the high-tech industry, which is desperate for workers. With the tax and innovation authorities, she’s drafting a blueprint to bring over thousands of people from abroad to bolster the industry, as well as new immigrants with the necessary skills.

As for the immigrants, that’s a great idea; Israel is a land of immigration and encourages aliyah. But with the foreign workers, it looks like another attempt to take the easy way out.

Foreign Minister Yair Lapid at a meeting of his Yesh Atid party.Credit: Ohad Zwigenberg

The industry is being forced to pay ever larger salaries, and the personnel shortage also means companies can’t realize the potential latent in the investments that enter the country. High-tech executives persuaded the science minister that foreign workers are part of the solution, warning that companies might relocate to East European countries like Ukraine and Bulgaria. It’s not clear whether the executives mentioned that already today, Israeli companies are operating abroad, motivated by various advantages.

Farkash-Hacohen says she aims to prevent the relocation of business abroad, not cap the surging salaries of Israel’s high-tech employees. But this is the easy way out. The hard way is to invest in retraining and training, to provide the tools to those with the potential to enter the industry.

No, that doesn’t solve the problem tomorrow; maybe in a year or three years. But the economy will reap a long-term achievement making it possible to train people for the country’s fastest-growing industry.

The importing of foreign workers would achieve the opposite. The pressure for professional training would decrease, the attempts to get new population groups into high-tech would fade, and the temporary solution of foreign workers would become permanent. Worse, it would perpetuate the idea that every employee shortage can be solved by bringing in foreign workers, and very soon every industry would be asking for similar permits.

Science Minister Orit Farkash-Hacohen, who's drafting a program to bring over thousands of people from abroad to bolster Israeli high-tech.Credit: Moti Milrod

This has already happened in agriculture, caregiving and construction. The main argument was that Israelis don’t want to do grinding physical work that doesn’t pay well (though construction pays more). Indeed, today these jobs are classified as occupations for foreign workers.

High-tech is a completely different story. Israelis want to work in the country’s best-paying sector, in a profession that’s financially rewarding and generates dreams of riches.

The media is rife with stories about how thousands of people got rich quick, not to mention employees who improved their salary very fast by moving between companies. The general feeling is that high-tech workers are the most in-demand in the country. Nobody needs to be persuaded to work in that industry – the incentives do that are clear.

But skills are needed, too. The shortage in high-tech workers, which has persisted for a number of years, has worsened during the coronavirus crisis amid the boom in the industry and the global demand for digital services.

Israel can exhaust its potential at home

Before foreign workers are imported to Israel, it’s worth examining the potential of the local market.

Last October, three researchers from the Aaron Institute for Economic Policy at the Interdisciplinary Center Herzliya – Niron Hashai, Sergei Sumkin and Hila Axelrad – published a paper on high-tech as an engine for emerging from the coronavirus crisis. They spoke with 20 human resources managers in the industry about the sector’s needs and reached some interesting conclusions.

First, at high-tech companies with a high percentage of employees with an academic degree, potential exists to hire people with a non-technology degree or people without a degree who were fired or furloughed during the crisis.

These are still high-quality people, and they might consider the high-tech option because of the employment crisis. The second finding is even more intriguing: Among Israel’s jobless in non-high-tech industries, there are between 43,000 and 104,000 high-quality workers, at least some of whom might have the potential to enter high-tech.

Third, from 2010 to 2017, the rate of salary increases for workers with academic degrees in non-high-tech industries was higher than for those with such degrees in high-tech. This indicates surplus demand for people who could potentially join the high-flying industry.

These are encouraging findings that obligate Israel to exhaust its potential at home before sending plane tickets to high-tech experts abroad. If salaries for Israeli employees in the sector create too much of a bubble, we’ll see the results in the future. In the meantime, let them enjoy themselves.

The ultra-Orthodox and the Arab Israelis

Farkash-Hacohen and her aides, United Arab List chief Mansour Abbas and the Israel Innovation Authority are crafting a plan for the Arab-Israeli community as part of the government’s aim to increase high-tech’s percentage of the labor market to 15 percent within five years from 9.5 percent today. Currently only 3 percent of high-tech employees are from the ultra-Orthodox community, while just 2 percent are from the Arab community.

Accordingly, a plan has been drawn up for research and development centers and startup accelerators in the Arab community, as well as incubators to invest in the first stages of young companies. That’s an excellent long-range view.

But the importing of thousands of foreign workers for high-tech would greatly reduce the companies’ incentive to wait for the beneficiaries of the specialty training. As a result, the worker shortage would remain chronic, as would the dependence on people from abroad. Plus, the government aims to create 170,000 high-tech jobs for Israelis, not people from other countries.



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