(photo credit: REUTERS)
Israel’s hi-tech revolution is in trouble as R&D investment flat-lines and a shortage of highly skilled workers grows, according to a report released Sunday by the Finance Ministry.
According to the report, Israel’s hi-tech sector grew at a rate of 9 percent a year, twice as fast as the economy, from 1998- 2012. But it has only grown half as quickly as overall GDP since 2010. Its share of exports, which grew from 15% in 2001 to more than 35% last year, has leveled off.
Investment in research and development, which grew at 6% from 1991 to 2012, has dropped off, with South Korea taking the lead in R&D investment among members of the Organization for Economic Cooperation and Development.
The rise of hi-tech in Israel has made it a crucial part the economy, the report noted. In 2014, the hi-tech sector accounted for 12% of private-sector workers, about 283,000, and 9% of GDP.
Though venture-capital investment has reached its level prior to the dot-com bust (as it has in the United States, though not in Europe), the local hi-tech sector faces a shortage of skilled labor.
“The most significant challenge facing the sectors is the supply of skilled labor,” the report said.
Israel had a massive uptick in skilled hi-tech workers in the 1990s, in part because of the influx of educated immigrants from the former Soviet Union.
But no such influx is headed toward Israel today, and the country is not grooming its own highly skilled workers quickly enough.
The share of students studying science has fallen from a peak of 13% in 2005 to 9% in 2014. Israel used to be several percentage points ahead of the OECD average on that measure, but the gap has completely closed as fewer Israelis study science.
The shortage of highly skilled workers helps explain the consistent rise in hi-tech salaries, which have inched closer and closer to US hi-tech wages, the report said. (The gap is still significant. Israeli hi-tech salaries remained 65% to 80% of those in the US in various fields in 2014.) The report issued a siren of sorts to Israel’s political leaders, who it said do not have a robust plan for addressing the issue.
“The shortage in labor trained for the hi-tech sector is not expected to be resolved in the absence of comprehensive policy,” it said.