Israel Lags U.S. in Tech Productivity

Israeli high-tech's productivity is tens of percentage points lower than that of U.S.; large gap has opened over past decade.

Productivity in the Israeli high tech industry is tens of percent lower than in U.S. high tech, according to data received by the Chief Scientist's Office in the Industry, Trade and Labor Ministry from the Central Bureau of Statistics and OECD publications.

The large gap between the Israeli and American high tech workers has opened over the past decade.

The chief scientist has established a committee headed by former Bank of Israel Deputy Governor Prof. Zvi Eckstein, to study the reasons behind the worrying figures and their consequences. The committee has already met once.

Industrial work productivity is a measure of efficiency and is based on sales per employee. The higher the productivity, the more efficient the company looks. This allows a company to offer lower prices than competitors.

The figures could indicate a growing inability of Israeli companies to compete in global markets if their products become too expensive. And this is without taking into account the present global economic crisis and foreign exchange rate problems facing Israeli firms. As a result, Israeli firms may become unable to translate their technological advantages into increased sales.

The data were presented to Chief Scientist Avi Hasson in a number of alternative formats. In one, the productivity figures were based on Purchasing Power Parity, which compares the buying power of an Israeli high-tech worker to that of an American.

Using PPP measures, in 2000 both Israeli and American high-tech workers had productivity of $110,000 per year. After the dot-com crisis in 2001, these figures fell in all developed countries, though in Israel it fell faster - and the gap has continued to grow.

In 2007 the figures were $73,000 per Israeli and $115,000 for an American. Israelis were even 15% below the figure for European workers in 2007-2008.

Another model uses figures adjusted for inflation. In these terms, if in 1995 Israeli, European and American high-tech workers were equal at 100% productivity, then now the Israeli is at about 165% and the Americans have reached over 400%. Using this model, Israeli productivity is similar to that in Europe.

The ministry said yesterday that the committee is only in the preliminary stages of gathering information and will try to understand the causes behind the productivity gap.