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Israeli High-Tech Human Capital Report

2022-2023 Snapshot

The report was authored by Eynav Ehrlich, Ziv Barel and Assaf Patir, and edited by Uri Gabai and Assaf Kovo. Special thanks to Riki Kaduri and Tal Enselman of the Central Bureau of Statistics for their significant contributions to the report.



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Key Findings

The second half of 2022: the start of a cross-industry slowdown

The low growth rate in the number of employees in the second half of the year - an increase of only 1.3%, a significant decrease compared to previous years - was evident across the high-tech industry. That is, this decrease was recorded in companies of all sizes and in all sectors. Less than half of the companies reported positive growth, and one in five companies even reported a decrease in the number of employees during this period. At the same time, 30% of the companies reported an increase of over 10% in the number of employees. However, the absolute majority of these companies were small companies (up to 50 employees), so even though the percentage increase is high, it represents a relatively small number of employees.

Figure 2: More than 50% of high-tech companies did not grow in the second half

Employment growth rate in H2-2022

In the breakdown by company size, it is evident that small companies employing up to 10 employees (most of them startups) were significantly affected during this period, with approximately 70% of them maintaining stability or reducing the number of their employees. Unlike large companies, where stability in the number of employees does not necessarily indicate business difficulties, startups are often in a state of "growth or decline." Accordingly, stability in the number of employees, let alone a reduction, in many cases signifies significant business difficulties for these companies.

Figure 3: Most startups did not grow in the second half of 2022

Employment growth rate in H2-2022

Slowdown’s impact was felt across all high-tech’s sectors

Almost all high-tech sectors experienced positive growth in 2022 (except Mobile and Telecom Technologies), but at lower rates compared to 2021. Alongside the growth in software-based sectors, the AgriFood-tech and Cleantech sector stood out favorably, ranking second in annual growth rate for the second consecutive year. It is also the only sector that experienced an increase in the number of investment rounds between 2021 and 2022. Among its leading sub-sectors was the field of Alternative Proteins. In a report published by SNPI institute, the potential for the development of this field in terms of human capital was presented, due to its being characterized by occupational diversity in several aspects: the training of the employees (more academic and more with life science training), gender (higher female representation, including in management positions) and geography (more companies establishing their activities outside of Tel Aviv).

Examining the growth trends at the half-yearly level shows that the slowdown that characterized the second half was seen across the board. That is, there was a decrease in growth rates in all sectors. The intensity of the decrease between the two halves varied by sector, but we believe that the differences are due to the different life-cycle compositions of the companies in the various sectors. For example, the Software Applications, Fintech and eCommerce sectors, characterized by a high proportion of young and small companies, decreased more sharply compared to sectors characterized by more established and larger companies, such as Industrial Technologies.

Figure 4: Software-based sectors continued to lead, AgriFood-tech and Cleantech stood out in the hardware-based landscape

Employment growth in 2022 by half



Decline in recruitments: fewer firms recruited; scale of recruitment reduced

The slowdown was reflected in recruitment patterns - fewer companies recruited and the scale of recruitment was reduced compared to previous years. The total number of recruitments in the second half of the year is estimated at about 30 thousand employees, a decrease of more than 10% compared to the same period last year (about 34 thousand).

About half of the companies reported in the survey that they recruited less than planned in light of the economic situation at the time. About 70% of the companies recruited employees in the second half of 2022 - a low figure compared to an average rate of 85% recorded in recent years. The small companies were hit the hardest in this aspect as well: only half of the companies with up to 10 employees, and about 80% of the companies with 11-50 employees, recruited employees during this period. In a regression analysis that isolated the effect of various factors (size, sector, and type of ownership), we found that the only variable that significantly (and negatively) affected the chance that a company had recruited employees was the fact that the company was very small.

Back to “employers’ market”: an increase in layoffs alongside a significant drop in the rate of resignations

Throughout 2022, particularly in the second half, the media often reported on high-tech companies laying off workers in order to reduce expenses. In fact, the rate of layoffs in the second half of 2022 reached 4.4%—a significant increase of approximately 70% compared to the 2.6% recorded in the corresponding period of 2021. Meanwhile, the rate of employees voluntarily leaving their workplaces decreased from 10.1% in the second half of 2021 to 4.7% in the second half of 2022. In this sense, it can be said that the labor market underwent a sharp transition in 2022, shifting from an "employees' market" to an "employers' market."

At the same time, it is important to note that the measured rates of layoffs and voluntary departures do not indicate an abnormal slowdown in the sector. In fact, these rates are very close to the multi-year average. The layoff rate is only 0.3 standard deviations higher than the average of the last decade, and the rate of resignations is 0.3 standard deviations lower than the average. Therefore, as of 2022, we can observe a return to the levels that were prevalent in the high-tech industry between the great recession of 2008-9 and the outbreak of the COVID-19 pandemic.

Figure 5: A significant drop in voluntary resignations, returing back to average levels

High-tech turnover - voluntary resignation vs. layoffs, annual rates

December 2022: decrease in open positions

Another decline was also observed in the number of open positions, which reflects the demand for employees in the high-tech industry. The survey reveals that by the end of 2022, there were approximately 17 thousand open positions in high-tech, roughly half the number of openings reported in April of the same year (32.9 thousand). This figure not only represents a "correction" from the unusually high number recorded in April during the industry's peak, but it is also lower than previous trends and comparable to the figures observed during the COVID-19 crisis (December 2020).

Between April and December 2022, there was a decline in the number of open positions in both technological and non-technological fields. However, these declines represented two different trends. Among non-technological open positions, there was indeed a sharper decrease (over 60%), but it marked a return to past figures (approximately 4,000 open positions) after an unusual spike - more than double the number of previous years - recorded in April. Technological open positions, on the other hand, decreased more moderately (by 40%), but reached the lowest scope seen in recent years (12.7 thousand).

Figure 6: Decrease in open positions - non-technological returned to annual average, technological fell below the average

Estimated number of open positions, in thousands

Employers had less difficulty recruiting technology employees. In April 2022, almost all companies (85%) reported difficulty in recruiting for R&D positions. In December 2022, this rate dropped to 55%, with half of the companies reporting that the difficulty was low compared to the previous year. In non-technological professions, the difficulty in recruiting was reported at much lower rates. Only 20% of the companies encountered difficulty in recruiting non-technological employees.

The stagnation that characterized the local high-tech industry in the second half of the year was across the board, affecting even "Growth" companies. These companies, along with small startups (up to 50 employees), experienced the most significant decrease in annual growth rates between 2021 and 2022 (from 31% to 16% and from 22% to 7%, respectively).

Figure 8: The downward trend was widespread among local high-tech companies

Employment growth in 2022, QoQ

While local companies experienced a decrease in annual growth rate between 2021 and 2022, multinational corporations saw an increase compared to the previous year (5%). Looking at the growth rates over the past three years, including the COVID-19 crisis in 2020, a record year in technology investments in 2021, and the initial entry into a slowdown in 2022, it becomes evident that local high-tech companies are highly sensitive to volatility in global markets, in contrast to the relative stability of R&D centers of multinational corporations. This data is important for the ongoing discussion in the high-tech industry regarding the competition for skilled human capital between local and multinational corporations. While multinational companies are often viewed as competitive threats to quality human capital during times of local prosperity, they also tend to maintain stability during times of crisis, playing an important role in the consistent development of local human capital.

Figure 9: The local high-tech sector is more volatile compared to multinational corportations

Employment annual growth rate

The stability of multinational corporations in the second half of 2022 is reflected in their recruitment patterns. A higher proportion of multinational corporations recruited employees and tended to follow their hiring plans despite the "economic situation" compared to local companies. In cases where fewer employees were recruited than planned, multinational corporations were more likely to implement a policy of hiring freezes rather than carrying out partial recruitments. One possible explanation for this phenomenon is the existence of a regulated policy by the parent company abroad.

Figure 10: More multinational corporations recruited employees, and did so as planned

Distribution of recruitment patterns among companies in H2 2022

Although more multinational corporations recruited employees, the share of recruitments compared to the overall employment at the beginning of the second half was lower compared to local companies (7% vs. 11%, respectively). The main reason for this is the apparent lower employee turnover in multinational corporations, which can be attributed to a higher rate of layoffs in local companies.

Although the local companies laid off a greater share of their employees, fewer companies chose to lay off employees in the first place compared to the multinationals (36% versus 50%). The combination seems contradictory at first glance: more multinational corporations implemented layoffs, but the share of their layoffs was smaller. The survey data indicates that the explanation stems from the reasons behind the layoffs. Only a tenth of multinational corporations reported laying off employees at higher rates than planned due to the state of the economy, compared to a quarter of local companies. Therefore, the survey data suggests that the layoffs in multinational corporations were likely more part of their "routine work," while in local companies, they were more reactive to the state of the economy.

Figure 11: Higher employee turnover and layoff rates in local companies

High-tech turnover - voluntary resignation rates vs. layoff rates in H2 2022

Another interesting trend emerging from the survey is the widening employee turnover gap among R&D employees. Fewer R&D employees chose to resign from their positions in multinational corporations, and from the companies' perspective, fewer R&D employees were terminated compared to local companies. Low turnover in R&D, which is the core of high-tech companies' activities, is of significant importance for their ability to maintain stability in the present and grow in the future. Examining the recruitments by level of experience reveals that one-fifth of local companies only recruited junior for R&D positions, a figure that may indicate resource constraints.

Figure 12: More multinational companies tend to recruit experienced R&D employees

Distribution of companies by recruitment patterns of R&D employees in H2 2022

Another disparity in growth trends among the two types of positions was recorded in multinational companies, where the number of R&D employees grew by an average of 1.3%, while the number of employees in non-R&D positions decreased by an average of 3.7%. Although R&D centers, which typically have a higher proportion of R&D workers due to the nature of their work, maintained stability in the second half, this did not translate into opportunities for non-technical employees.

The transition to an "employers' market" did not circumvent R&D roles: the rate of voluntary departures dropped from 8.4% in the second half of 2021 to approximately 5% in the second half of 2022. Even more noteworthy is the change in the layoff rate, which increased from 1% to 4.4%. This significant increase is primarily attributed to a number of small and medium-sized software-based companies that ceased operations during the year and reported exceptionally high layoff rates.

An examination at the company level reveals the effort to safeguard R&D activities, even at the cost of non-R&D positions. For instance, nearly a quarter of the companies reported laying off employees exclusively from non-R&D positions, while less than one percent reported terminating only R&D employees. This phenomenon is particularly evident in medium-large companies: none of the companies fired R&D employees only, but one in three medium-sized companies (51-200 employees) and over one in five large companies (200+) dismissed employees solely from non-R&D positions.

Figure 14: A significant portion of large companies maintained their R&D core and laid off only employees in non-R&D positions

Share of companies that laid off employees in the second half of 2022 by job type