Bank of Israel: Hi-tech booming but segments of population are left out

Exports of Israeli chemicals and pharmaceuticals slumped, while exports of software and scientific research more than doubled from 2011 to 2017.

March 28, 2018 18:12
2 minute read.
woman hi tech tel aviv

A woman walks near high-rise buildings in the hi-tech business area of Tel Aviv. (photo credit: REUTERS/AMIR COHEN)


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The hi-tech industry continues to capture the lion’s share of exports, while the gains are not trickling down to the rest of population, the Bank of Israel said in its report published on Wednesday.

Exports of chemicals and pharmaceuticals slumped, while exports of software and scientific research more than doubled from 2011 to 2017.

The success of Israeli hi-tech could even lead to “Dutch disease” problems, or when a sharp inflow of foreign currency and investment into one industry leads to sharp local currency appreciation. With the shekel reaching record strength earlier in 2017 – partially due to huge international investment in Israeli hi-tech – that made other exports less competitive.

The Bank of Israel also mentioned how Israeli hi-tech is overheating, with hi-tech firms and start-ups finding it difficult to locate skilled software programmers and engineers. On average, hi-tech employees make 50% more than workers in other industries.

In response to the shortage, the bank’s governor urges the government to fund more science, technology, engineering and math programs in high schools and universities.

And with most hi-tech employees coming from certain sectors, companies need to do more to recruit candidates from ultra-Orthodox and Arab backgrounds.

In the meantime, the labor market is close to full employment – with a workforce participation of 80%, an all-time high. In contrast, the US workforce participation rate stood at just 63%.

The unemployment rate is also the lowest it has been in decades, and the tight labor market is helping cajole employers to grant pay raises.

“The increase [in employment rates] in the past 15 years is most impressive among ultra-Orthodox women,” said Bank of Israel Gov. Karnit Flug at a press conference on Wednesday, adding that the increase has been more moderate among Arab women and ultra-Orthodox men.

For ultra-Orthodox men, “there has even been a worrying halt in the increase in the past two years.”

And the employment rate for those living in the periphery lags behind those living in the center of the country, somewhat due to a lack of mass transit options.

The report also notes how income inequality continues to worsen, partially reflecting the sharp skills gap in the population.

While secular and National Religious Jewish students benefit from a diverse curriculum, ultra-Orthodox pupils do not study science and English, and Arab schools remain underfunded when compared to their Jewish peers.

“The level of skills relevant to the labor market (literacy, numeracy, and functioning in a digital environment) is relatively low in all education groups,” Flug said....

Israeli student achievement in standard international tests is relatively low, and the gaps between the achievements of students from different socioeconomic backgrounds is particularly high.”

Ending on a positive note, Flug touted Israel’s progress today and the fact that historic inflation is no longer a problem – but the opposite.

“Where we were once a country whose ultimate pride was in the export of oranges, and which suffered from a chronic balance of payments deficit and then from huge public debt and runaway inflation, we have become a country with a balance of payments surplus, a surplus of assets over liabilities, and inflation that we would like to be a little higher,” Flug said.

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