On the whole, we find support for the hypothesis that technological developments create a scale bias, but this process only partially explains the decline.
Competing with larger companies for resources
In recent years, we have witnessed a significant increase in the number of large companies operating in Israel. Whether these are R&D centers of multinational corporations, or Israeli growth companies, the Israeli high-tech market is replete with large, established companies competing with the younger start-ups for the same human capital resources. In the original report, we noted that this competition raises both entrepreneurs’ opportunity costs and a start-up’s founding costs due to the high wages of the R&D workers and others.
Figure 5 depicts the wage spikes in the high-tech sectors between 2014 and 2021. According to the Central Bureau of Statistics (CBS), during this period there was a 4.5% annual rise in wages, creating a total rise of 36% since 2014. In 2021 there was a 6.3% rise in wages. We should note that the CBS definitions for high-tech are different than those of the SNPI, and therefore we estimate that the actual rise in relevant wages was even higher.
Figure 5: Wages in the high-tech industry (CBS, 2014=100).