Soaring High-tech Salaries Send Ripples Across Israeli Economy

The income gap between tech and the rest is growing as the industry booms, but many Israelis can’t even aspire to a piece of the action

David Rosenberg
David Rosenberg
The scene on Times Square when Tel Aviv-based started trading on the Nasdaq in June.
The scene on Times Square when Tel Aviv-based started trading on the Nasdaq in June.Credit: Nasdaq
David Rosenberg
David Rosenberg

The Israeli high-tech industry is on fire: Billions of dollars of investment are pouring into startups, exports of everything from semiconductors to research and development services are growing, and companies are begging for workers.

The coronavirus and the demand for digital products and services it has spurred have made Israeli tech bigger and richer than ever before. But this process is also widening the digital money divide between the high-tech elite and the rest of society.

For years high-tech workers have enjoyed pay and conditions far better than other Israelis, but the gap widened sharply last year.

The Central Bureau of Statistics says the average monthly salary in the tech industry reached 25,812 shekels ($8,240) in October, more than 8 percent above a year earlier. The best-paid jobs in R&D and software engineering pay 2,000 and 3,000 shekels a month more. Meanwhile, average pay in Israel was at 11,277 shekels in October, with the number falling 2.6 percent over the previous 12 months.

Eyal Solomon, CEO of the high-tech recruiting firm Ethosia, says the statistics bureau’s figure understates the real rise in salaries. In industries like software and other engineering fields, as well as in product management, pay has grown much faster, he told Haaretz.

Salaries are up because demand for workers is so strong. Some 780 Israeli startups raised a record $26 billion from investors last year, and now they’re hiring to increase sales and achieve profits. Demand is so great that Ethosia estimates that around 21,000 tech jobs were unfilled at the end of last year, up from 13,000 to 14,000 in previous years.

All that money has given startups such deep pockets that they can even lure employees from multinational companies based in Israel – giants like Intel and Microsoft.

“Looking back at the past year in terms of acquisitions and funding, you see that about $26 billion came into the country, and this money goes directly to salaries and benefits, even fun stuff,” Solomon says, referring to perks like company events and presents. “We’re seeing them now hiring people who in the past wouldn’t have even approached them for a job.”

The growing pay gap between tech and the rest should come as no surprise. The flip side of the COVID boost to tech employment is a decline in demand for jobs that require the fewest skills. Remote services and digitization have hastened the pace at which those kinds of jobs are disappearing.

That’s taking a toll on large swaths of the Israeli economy. As much as tech is Israel’s flagship industry and its payroll is growing, government figures show it accounts for just over 9 percent of the Israeli labor force. The core R&D and software sectors employ just 55,800 of the 3.76 million people in the Israeli labor market.

Theodor Herzl looks on as a new housing estate rises to his left and high-tech company offices work to his right in Herzliya Pituah, just north of Tel Aviv. Credit: Tomer Appelbaum

Lesser-loved law degrees

The widening pay gap is reverberating across Israeli education and the job market, and even the army.

University students are shunning studies in the humanities, social sciences and even law in favor of tech-friendly majors. The number of students pursuing a bachelor’s degree in math, statistics and computer science has more than doubled in the decade to the 2020-21 academic year, according to the Council for Higher Education. The number studying engineering is up 42 percent.

Together, math, computer science and engineering account for 28 percent of Israel’s undergraduate population. The council launched an 850-million-shekel program in 2017 to boost undergraduate tech studies and increase the number of students by 40 percent, and it has almost reached its goal.

Meanwhile, the number of students studying for a B.A. in the humanities has dropped 25 percent. Even the number of students pursuing a law degree, once the preferred route to a lucrative career, is down almost 8 percent in the last decade.

The army hasn’t escaped the high-tech vortex either. Israel’s most ambitious young people once sought to serve in elite combat units, but today, with an eye on a tech career, many prefer to serve in the elite 8200 intelligence unit or other high-tech outfits.

That prompted IDF Chief of Staff Lt. Gen. Avi Kochavi last month to criticize the cultural change. Referring to a poster with the slogan “The Best for Cyber,” riffing on the air force’s motto, Kochavi said: “The best are first and foremost the fighters, as measured by their willingness to contribute to the country and sacrifice their lives to protect others.”

In fact, even 8200 is struggling to keep its best recruits from quitting for high-tech jobs after their mandatory service ends. Service in 8200 is regarded by employers as the equivalent of a first-class university degree.

The problem of tech snatching up so many skilled workers extends to older people already established in their careers in other professions. Israel’s top law firms raised salaries this year for first-year associates in an effort to keep them from jumping ship. At Herzog, Fox & Neeman, for example, pay was boosted to 16,000 shekels a month from 14,000.

“Young lawyers see their friends in high-tech getting 22,000 and even more. They won’t stay in the [legal] profession if we don’t compensate them properly,” one senior law firm partner told the financial daily Globes.

Even the medical profession is feeling the tech squeeze. As Haaretz reported last September, doctors work longer hours at more stressful jobs for less pay than their techie counterparts. Meanwhile, Israel’s defense industry, which is heavily geared to high-tech weaponry, is also seeing employees flee to better-paying tech jobs. Government-owned companies, whose ability to offer more pay and better conditions is constrained by public sector rules and regulations, can’t begin to compete.

Shoddy schools

Still, the option of jumping to a more lucrative job in tech or to study engineering instead of comparative literature is only available to a small number of Israelis.

As Tel Aviv University economist Dan Ben-David explains, the great majority of Israelis don’t have the skills and education to aspire to an engineering degree or the luxury of jumping from a high-paid job as a lawyer to an even higher-paid one as a software engineer.

Israeli schools perform poorly, as seen in their students’ low scores on international exams such as the OECD’s PISA, leaving them without the necessary skills. The growth of Israeli high education hasn’t kept pace with population growth.

Ultra-Orthodox children heading to school in Bnei Brak last year. Haredim don't receive an education that prepares them for the labor market, much less a high-tech job.Credit: Nir Keidar

Moreover, Israel’s ultra-Orthodox minority is the fastest-growing segment of the population and rarely gets the kind of schooling that prepares its kids for the labor market, much less a high-tech job.

“The diameter of the pipeline is too narrow,” Ben-David says. “The primary problem is the feeder system – the high schools and the elementary schools. The education we provide in Israel is at the bottom of the developed world. The groups that are growing the fastest aren’t capable of being accepted to university. ... Even if they could enroll, we wouldn’t have enough room for them.”

The impact of tech salaries is stretching beyond the labor market. The tens of billions of dollars being invested in the industry comes mainly from abroad – investment in dollars that’s converted into shekels. As a result, the shekel is at a 25-year high against the dollar. That has made competing in overseas markets a lot harder for Israel’s non-tech companies, whose costs in dollar terms have risen.

The tech boom is also threatening to accelerate the pace of soaring home prices.

It hasn’t happened yet. Last year, prices nationwide jumped 10.6 percent, but the number was about the same in the Tel Aviv area, even though it’s the epicenter of the tech industry. Geocartography, a market research firm, said in a survey released in November that even though techies are accumulating savings from high salaries, bonuses and stock options, they haven’t yet descended on the real estate market in a big way.

Tel Aviv high-rises. Techies are accumulating savings from high salaries, bonuses and stock options, and are expected to buy apartments soon. Credit: Eyal Toueg

But they are expected to soon. About 42 percent of the 300 tech workers Geocartography surveyed said they didn’t own a home, making them candidate buyers, and about a third said they planned to buy one in the next three years.

“The real impact of techies will be felt in the coming years when many of them buy their first or second home,” Rina Degani, the firm’s chairwoman, told Globes.

“The money they have and the big mortgages they can afford may in the first stage spur the market for small and luxury homes, and later bigger ones,” she added.

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