The need for psychometric exams in Israel in assessing applicants to Israel's schools of higher education, similarly to the SAT college entrance exams in the United States, has often sparked intense debate. Recently, several attempts have been made to do away with them altogether.
However, a new Bank of Israel study, based on data from the Central Bureau of Statistics, has found a strong correlation between psychometric test scores and average wages in the first three years after college.
High-tech workers who scored over 680 in the test average 11% to 14% more in pay than their lower-scoring colleagues in the same professions, according to the study. The psychometric "premium" extends to most of the fields surveyed, including economics, humanities, law, business and civil engineering.
Dr. Yoav Friedman of the Bank of Israel, who performed the study, analyzed a new set of CBS data on average and median pay figures for men in their third year after completing undergraduate degrees. The graduates had enrolled between 1998 and 2000 and their pay was sorted according to their area of study and their psychometric exam results. The pay of two subgroups – one comprised of high scorers on the psychometric test (640 to 679), the other of the highest scorers (680 to 800) – was measured against average pay for each field.
The analysis found that the pay increment differs according to academic major. For example, applicants high scorers who studied computer science earned 10.7% more than the average for all computer science graduates, while paychecks for high-scoring math and statistics grads were 14.2% larger than average in those fields.
This is also the case in the high-tech professions of electrical engineering and computer engineering: HIgh psychometric marks correlate with higher pay.
There are professions, however, in which this principle doesn’t hold. High-scoring graduates in architecture and paramedic studies, for example, earn on average much the same as their colleagues. Top-scoring civil engineering graduates were found to actually earn over 5% less than average for the profession.
The study also found cases of substantial differences in the pay increment associated with high-scoring as opposed to top-scoring graduates. Those in technological fields like electrical engineering, computers and math needed to ace the psychometric exam, with scores of 680 to 800, to gain any considerable advantage. For instance, electrical and computer engineers psychometric results between 640 and 679 earned just 3.6% more than average for their field, as opposed to those boasting scores of 680 and more who earned 11.4% above the norm.
According to the data, scores of 680 and above were achieved by just 9.2% of all those sitting for the test in 2011, with around 7% scoring between 640 and 679. The average score in 2012 was 531. Hebrew speakers averaged 565 while Arab speakers scored more than 100 points less – 462 – despite boasting slightly higher average matriculation (bagrut) results – 89.2 – than their Jewish counterparts – 87. The study noted that the highest average psychometric score by academic major in 2011 – in the range of 575 – was achieved by computer science and engineering school applicants.
Lucrative high-tech wages thanks to exports
Psychometric test results are just one of the factors affecting workers' pay. According to the statistics bureau, the type of academic institution awarding the degree has a particularly strong effect on pay for any given profession. Salaries earned by university computer science and engineering graduates were tops among all fields examined. The particular school was also found to play a major role: Average monthly pay among computer science graduates was highest for degree holders from the Technion – NIS 20,866 – while undergraduate degrees earned at Tel Aviv University in engineering averaged higher, at NIS 20,711, than from any other Israeli institution.
Explaining why high-tech salaries exceed those in other fields, Friedman points out that engineering, mathematics, and computer science graduates – the best paid of all undergraduate degree holders – are disproportionately employed in export-oriented industries (where exports represent over 50% of revenues).
Friedman concludes that salaries in these industries are a function of the success of Israeli exports, global demand and the inflation-adjusted foreign exchange rate, and that gaps in pay between professions geared towards exports and those oriented towards the domestic market – such as law, economics, and accounting – can widen or shrink accordingly.
According to the study, the typically high level of pay in high-tech compared with the average in the business sector enhances the industry’s ability to cope with economic jolts like the dot.com bust at the start of the 2000s or the global economic crisis at the end of that decade. The study examined high-tech employment data over the past 15 years in connection with the industry's resilience to shock waves, and Friedman concluded that high pay levels give employers more flexibility to cut salaries in times of crisis. Thus, while the two crises sharply lowered high-tech wages, they didn't prod people engaged in the industry to switch occupations.
Over 190,000 people were employed in high-tech industries in 2011 - nearly 9% of all business sector employees. Almost half of these people worked in computer services, including software companies. However, the upcoming generation in this field is dwindling.
Since 2006 the number of undergraduate degrees earned in professions related to information technology has been on the decline, Friedman says. The most notable drop is in computer sciences. He believes that upcoming years will see a scaling back in the number of engineering and computing degrees awarded, which will lead to a greater shortage of high-tech engineers. He points out that the number of candidates for undergraduate degree programs in these fields began declining in 2010.
"Following the 2001-2003 crisis the rush of young people to computer, electrical engineering and electronic engineering studies came to a halt," he says. "The recovery of IT industries beginning in 2004 restored the upward trend in proportion to the number of IT industry employees. Since 2008, however, there hasn't been any increase in the percentage of employees in these fields in terms of the entire business sector, a fact that might point to the end of an era."
Friedman also notes a lag in closing the gap between demand and supply of high-tech workers due to the length of studies required. "There is a five-to-eight-year delay until labor supply adjusts itself to the sharp rise in demand," he says. "The peak in the number of students completing undergraduate degrees in computer science, computer engineering, and electrical and electronic engineering [in proportion to the youthful population] was registered in 2004 – more than five years after the returns for studying these disciplines began to jump. Only in the period from 2006 to 2008, five to seven years after the dot.com crisis, was there a drop in the number of people completing undergraduate degrees in these fields.
"In the event of a negative shock to the industry,” Friedman continues, “the adjustment of labor supply to demand in IT industries could be harsh and would likely occur through a combination of salary cutbacks and reduction in the number of young hires. Most employees would likely agree to a cut in their relative pay before going to look for jobs in other fields."