The Israel Innovation Authority recently published a new report on the country’s high-tech sector following a year since the war began on October 7. According to the data, while the sector has shown great resilience over the last year, a worrying trend is also seen in which the number of new employees in high-tech companies has stagnated since 2022.
Although fundraising figures are similar to those from the same period last year, the tech sector is experiencing a concerning stagnation in employment and new hires. The report indicated that, while the global tech industry shows early signs of growth and recovery from global economic crises, Israel has been facing troubling employment stagnation in the sector over the past two years.
Since 2022, there has been an almost complete halt in the growth of employees, with the number stuck around 400,000, representing about 11% of the Israeli workforce – a rate that has also stopped growing.
This situation poses a significant issue for the Israeli economy, as the contribution of high-tech employees to state tax revenues is substantial. The Innovation Authority warned that, without positive change in employment, a negative impact on state tax revenues could be expected at a time when the state’s deficit is deepening.
In terms of fundraising, Israel's innovation hub wasn’t harmed by the war and still ranks third globally, after Silicon Valley and New York. Capital raised between October 2023 and August 2024 is similar to the previous year’s period standing at nearly $9 billion. Despite the ongoing security situation, Israel remains a major attraction for foreign investment.
The high-tech sector is one of the most important industries for the Israeli economy, accounting for over half of Israel's exports, about a third of the state’s total income (from employee income taxes) and roughly a fifth of the gross domestic product (GDP).
However, the report's authors warned that the industry is facing a critical period, characterized by increased risk and growing uncertainty, with potential repercussions for the entire Israeli economy.
Another point in the report revealed that over half of those employed in the tech sector in the last six months were in research and development roles, while the number of employees in product roles and those supporting development and business operations has declined.
The direct consequence of this decline is reduced job opportunities in tech for those without technological positions. At the same time, salaries in the tech sector continue to rise and the wage gap with the rest of the economy keeps expanding. The average salary in tech in Q 2024 stood at 31,500 shekels, 2.8 times the national average salary.
Another worrying trend is the main concentration of investments in mature companies, especially in cybersecurity. Nearly 60% of investments made during the war were directed at large funding rounds (over $50 million), mainly in established companies. The cybersecurity sector became particularly dominant, accounting for about 35% of total investments during this period, double the share from previous years.
These figures highlight the success of Israel’s cybersecurity sector, but also underscore the risk posed by the decline in investments in young startups and other fields, which could hinder innovative developments and limit the growth of new companies that form the foundation of Israel's future innovation.
Following the report's findings, the Innovation Authority recommended, among other things, to increase government investments in the tech sector, especially in young startups, early-stage growth companies and technological fields with low private capital availability.
"The stagnation of employment is a clear warning sign," said Innovation Authority Chair Dr. Alon Stopel. "The high-tech industry is becoming more focused on technological roles, which is a clear indication that business growth is happening outside Israel. If this trend continues, it will harm economic growth and impact the opportunities for people in 'support roles' to enter the tech sector."
Innovation Authority Director-General Dror Bin also addressed the alarming data, stressing the importance of startups and government support for the sector.
"To ensure that tech returns to its rapid growth trajectory, we must ensure that investments flow not only to larger companies and cybersecurity firms but also to young startups, early-stage growth companies and all areas of technology," Bin said. "One way to do this is by increasing government investment in the tech sector in the coming years, as was done in 2024."
Innovation, Science and Technology Minister Gila Gamliel stressed the Israeli high-tech sector’s resilience in light of the report but added that the government must ensure its continued growth.
"The report proves that Israeli high-tech remains a stable pillar, despite the war," Gamliel said. "However, being stable isn’t enough. We must strive for prosperity and growth, especially in the face of global competition."