Can Jerusalem's hi-tech sector be an economic growth engine for the city?

For the growth of the hi-tech industry to influence the urban economy, the development of quality local human capital must be pursued in the city, as well as the integration of Arabs and haredim.

By YAMIT NAFTALI
Distribution of Employees According To Place of Residence, 2017 (photo credit: JERUSALEM INSTITUTE FOR POLICY RESEARCH)
Distribution of Employees According To Place of Residence, 2017
(photo credit: JERUSALEM INSTITUTE FOR POLICY RESEARCH)
Recent years have seen growth in the Jerusalem hi-tech industry, including in the biotech sector in the city. Between 2013 and 2017, the number of companies increased by 52%. According to the IVC, the Israeli High-Tech and Venture Capital Database, today there are about 500 hi-tech companies in Jerusalem, of which 29% are biotech companies; the number of employees is approximately 15,000.
Some of the growth in the industry is related to the efforts of the Jerusalem Development Authority and the Jerusalem Affairs Ministry in the framework of the Marom and HaYovel programs, which are designed to encourage economic growth in the city. One of the growth engines identified by The Jerusalem Institute for Policy Research is the biotech industry. Jerusalem has a relative advantage here, and about 10% of Israel’s biotech companies are located in the city, which is also home to major hospitals and one of the world’s best universities, all of which constitute fertile ground for the development of a cluster of biotech companies in Jerusalem.
Based on the success of the development of the biotech industry in the city, and since Israel is the “Start-up Nation,” a decision was made to broaden existing efforts and invest resources in the entire hi-tech sector. However, it appears that this growth hasn’t penetrated the urban economy. The incidence of poverty hasn’t changed in recent years, the rate of participation in the workforce has remained almost the same, and wide gaps remain between the salaries of workers in Jerusalem and the rest of the country. The relative share of the hi-tech industry in Jerusalem has not increased in recent years and is still about 6%.
In other words, the growth of the hi-tech industry in the city is similar to that in the rest of the country. In addition, approximately 35% of employees in the Jerusalem hi-tech industry commute from outside the metropolis. This figure is consistent with the claims of the Jerusalem companies that “it is hard to find workers in Jerusalem.” Furthermore, the Arab and haredi populations haven’t succeeded in integrating into the industry. Thus, only about 5% of those employed in the new hi-tech companies in the city are Arabs.
For the growth of the hi-tech industry to influence the urban economy, the development of quality local human capital must be pursued in the city, as well as the integration of Arabs and haredim into the sector. This may be accomplished by exposing these populations to the hi-tech industry and training them for positions for which there is a shortage of employees in both Jerusalem and the rest of the country.
Translated by Gilah Kahn.