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Behind the Headlines: Shortage of High-tech Specialists Affecting Israel’s Economic Growth

June 23, 1998
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Israeli engineers and computer programmers are not worried when they see dramatic headlines warning of rising unemployment.

All they have to do is turn to the help-wanted pages, which are filled with ads from companies seeking high-tech specialists. The ads demonstrate what many in the field already know: Electronics and software companies in Israel face a drastic shortage of skilled workers.

Israeli economic leaders believe that alleviating this shortage is one of the biggest challenges facing the economy as it moves into the 21st century.

Part of the problem is attributed to the shift away from traditional industries such as textiles and agriculture toward high-tech, leaving many unskilled workers unemployed.

Meanwhile, burgeoning companies throughout Israel’s booming high-tech sector are desperately seeking skilled engineers, computer programmers and technicians.

“We need about 4,000 new workers a year,” said Zohar Zisapel, chairman of Rad, a group of data communications companies, and head of Israel Electronics Industries, an industry organization. “Due to the shortage, the electronics industry is growing at a much slower rate than its potential — about 11 percent a year instead of 20 per cent a year.”

Not only are high-tech companies prevented from reaching peak levels of developing and manufacturing, but the manpower shortage also pushes up wages for these highly demanded workers, eroding the profitability of technology companies.

According to one Tel Aviv recruitment firm, some specialists are so badly needed that a discharged soldier with the right training can begin working without a college degree for about $35,000 a year — double the average income in Israel.

“Salaries for engineers and software experts have climbed 50 percent in dollar terms over the past five years to U.S. levels, mainly because of the shortage,” said Elisha Yanay, general manager of Motorola Communications Israel, a subsidiary of the U.S. giant.

The under-performance of the technology sector is a particular problem this year, as the government struggles to reverse an economic slowdown. Maximum growth of technology companies is crucial to reversing the trend because the sector has become the main engine driving Israeli economic growth during the past decade.

During that period, as the high-tech sector established its place at the vanguard of the economy, many new jobs were filled by highly skilled immigrants from the former Soviet Union.

Today, immigration is tapering off, and universities are not producing graduates as fast as the companies are producing jobs.

Steps have been taken to try to solve the problem.

Earlier this month, the Council for Higher Education, a public body dealing with university budgets, submitted a plan to Prime Minister Benjamin Netanyahu to eradicate the shortage. The plan envisions doubling the high-tech workforce from 30,000 today to 60,000 in the year 2003.

The plan has been set in motion, budgets have been allocated and industrialists are optimistic, but there are still obstacles.

Nissan Limor, director-general of the Council for Higher Education, says universities need to increase their pool of computer and engineering instructors.

“We are trying to bring back Israeli specialists who have left the country,” he said. But that also requires universities to offer competitive salaries.

Another problem, said Limor, is that only 18 percent of high school graduates are qualified to enter departments at universities that prepare students for the high-tech fields.

“There is a need to convince those students that have the capacity to choose science and technology,” said Zehev Tadmor, president of the Technion-Israel Institute of Technology.

The Technion, which produces the vast majority of Israeli graduates going into high-tech industry, had already increased its student population by 30 percent this year, and plans to grow up to 50 percent more over the next seven years.

Even if these problems are solved, since most technology workers need to be trained on the job for about two years, it could take as much as four years before the sector reaches full capacity.

Until then, technology companies need a solution — but they cannot agree on a strategy.

“We believe the government must give permits to foreign workers from India and Eastern Europe, where there is a surplus,” said Zisapel.

Amiram Shore, president of the Israel Software Association, staunchly objects to allowing foreign workers into the technology sector, even though software companies face the same problems as electronics companies.

“Our biggest asset is ingenuity,” he said. “If we let in foreign workers, we will be transferring ingenuity to potential competitors.”

The differences regarding the use of foreign workers in the industry may explain why the government has refused to let in foreign technology specialists. Finance Minister Ya’acov Ne’eman recently dismissed the notion as “absurd” — even though there are tens of thousands of foreigners licensed to work in other sectors.

If foreign workers are not brought in, Israeli companies may find they have no choice but to move operations abroad if they are to remain competitive with their rivals in Silicon Valley.

There are already signs that this is happening. Amdocs, a manufacturer of information systems for telecommunications companies, has set up a facility on the nearby island of Cyprus.

Earlier this year, Magic Software set up the first Israeli research and development center in India. Some industry players say it is just a matter of time before other firms follow Magic’s lead.

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