High-tech Lacks Experienced Workers. Should Israel Pay to Train Them?

The Israel Innovation Authority thinks it has the solution, and is currently launching a pilot that offers a subsidy for companies that train new university or seminary graduates

File photo: The Open Hub in Jerusalem, June 24, 2014.
Noam Feiner

Israeli high-tech companies have been complaining for years that they face a chronic shortage of workers, yet they show little willingness to compromise, hire less experienced employees and train them. Israel’s higher education system graduates some 6,000 people with relevant degrees every year, but many of them – a full 25% – never find a job in the high-tech industry, according to the Central Bureau of Statistics.

In December 2018, the Innovation Authority and the nonprofit Start-Up Nation Central published a survey showing that there are 15,000 open positions in core technology jobs, and yet, some 40% of the companies with openings are not hiring junior workers – the industry’s name for workers with two years or less of experience. The other companies stated that one-third or less of their openings are for junior programmers.

The Israel Innovation Authority within the Economy Ministry thinks it has the solution, and is currently launching a pilot it calls High-Tech Internship. The program offers a subsidy for companies that agree to train new graduates of universities or ultra-Orthodox women’s seminaries who have no prior industry experience. The authority intends to give companies 50,000 shekels for every so-called intern who is paid a salary of at least 15,000 shekels a month. Participating companies will take on 2 to 10 interns. The payment will be split over a period of six months, working out to a 8,300 shekel subsidy per worker per month.

The pilot has a 10 million shekel budget, with the goal of placing 200 new employees at some 20 to 30 companies.

Eligible companies are those with up to 1,000 employees and at least 30 people engaged in research and development.

The Innovation Authority explains that for the Israeli startups, particularly those in the growth stage, taking on unexperienced workers is a risk. These companies are in the middle of an existential battle and they need experienced programmers to help them grow quickly. Investing in training inexperienced workers cuts into the companies’ resources and slows development since more experienced engineers need to invest time into training them.

But even larger companies are skeptical about training their own employees, due to the fear that new workers will jump ship the moment they get some work experience, and the investment won’t pay off. Changing jobs is the industry’s accepted way of getting a raise.

In the meanwhile, the high salaries and the lack of experienced Israeli workers is pushing many companies to outsource overseas, primarily in India and Eastern Europe. This phenomenon has been growing at an incredible pace over the past few years. A survey conducted a year ago found that one in four startups has outsourced employees abroad, and that for these startups, on average 25% of their workforce is employed this way. Clearly, Israel’s economy would benefit if these jobs were to go to Israeli workers.

Given the high-tech industry’s massive access to private money, why does it need state funding to train new workers? The Innovation Authority believes that once companies are incentivized to build training programs, they’ll realize that hiring junior workers pays, and will continue doing so.

“Sometimes these companies, that are in such a race to grow, can spend months looking to find an experienced candidate, and when they find one, they need to offer a high salary in keeping with the industry,” says Naomi Krieger Carmy, head of the societal challenges division at the Innovation Authority. “This process should encourage them to think outside the box and consider an internal training program that would help the company develop over the long term, and make it easier to hire unexperienced workers.” The authority would consider it a success if companies were to start training employees without receiving an incentive to do so, or if companies that didn’t participate in the pilot also start training their own employees, she said.

The authority also believes that employees who receive training will be slower to quit and go elsewhere for a raise.

However, senior members of Israel’s high-tech industry were skeptical about the program’s chances. One explained, “This program rests on an assumption that a subsidy or a financial incentive will make startups hire more junior workers than they would otherwise want. But there’s an internal contradiction here. First off, a junior worker costs half of a senior worker. If I have an important, strategic project, or if I’m a growing startup, I have two options: To pay more for a senior, because that’s not going to destroy me financially, or if I lack money, to hire someone in India or Eastern Europe.

“Under either scenario, an extra 8,000 shekels a month for half a year is not going to be what moves my hand, because if I’m ready to pay extra for a senior, I’m not going to compromise on a junior, and if I’ve already invested in expanding into Europe, it’s easier to just draft another senior there, and it’s cheaper than even a subsidized junior. In other words, the problem here isn’t money.”

Other critics say that the new proposal undermines a previous government program launched two years ago, programming bootcamps that offer short, intensive training. The bodies that won bids to lead the bootcamps are compensated for every participant who finishes the 15-month program and then goes on to find a job earning 14,000 shekels a month or more.

Innovation Authority sources say there are currently some 20 bootcamp programs training 1,000 people a year, up from five programs training 300 people a year as of 2016, before the government program was launched. Most of the programs were launched over the previous academic year, says Krieger Carmy.

But industry members say that the government’s efforts of the past few years have created a lot of inexperienced employees, which creates a bottleneck of too many workers competing for the few entry-level jobs offered. A better method would be to combine the bootcamp training with on-the-job internship work, said one source.

The Innovation Authority responded that there’s no one solution to addressing the industry’s manpower shortage, and different techniques need to be tried to judge which is most effective. It said the bootcamp program and the new internship program would compliment one another.

Other critics questioned whether the money will meet its goal. “Every year, universities produce thousands of graduates and the companies have a certain number of entry level roles,” said one senior industry member. “The authority is trying to address the bottom 25% that isn’t finding jobs. First off, you need to admit that many of them may not be suited for these jobs. Second, the authority’s model offers no way to confirm that we’re helping these people and not the remaining 75% who would have been hired in any case. They’re not insisting that employers take only candidates who haven’t found a job in the six months since completing their degrees.”

That source predicts that the companies applying for the stipends will be those that intended to hire junior employees in any case.

“The benefit for the companies is a tremendous waste,” he summarized.