Flug: 9% of employees carry the economy

Karnit Flug

The Bank of Israel Governor says that the 90% non high-tech employees have low wages and low productivity.

The Israeli economy is actually two economies with growing gaps between them, according to a Bank of Israel analysis presented today at the Eli Hurvitz Conference on Economy and Society being held by the Israel Democracy Institute. Governor of the Bank of Israel Dr. Karnit Flug, who presented the findings at the conference, compares Israel to a train with a modern advanced locomotive carrying outmoded and poorly functioning carriages.

Start-Up Nation Central chairman Professor Eugene Kandel said, "The conference's thesis of two economies and one society is very appropriate for Israel. The two economies - the high-tech economy and the economy of the conventional industries - are completely different. The high-tech economy is required to compete globally, and could easily vanish from Israel, because there are many forces outside Israel attracting it, while the other economy is far more local.

"The two economies have completely different needs in regulation, financing, and personnel. The purpose of the conference is to bring a feeling of urgency to finding solutions, and the most difficult task is to create two growing economies with one society with a belief that the two parts are one complete whole."

The modern engine that Flug is talking about is the Israeli high-tech sector, which has 5,000 startups featuring innovation and dynamism and gives Israel a high rating on international innovation indices. It involves close cooperation between institutions of higher learning and industry, a developed venture capital industry, etc. Contributing to this industry are the challenges facing Israel, for example security threats, which have been a catalyst for the creation of the cyber industry, and the water shortage, which led to the development of drip irrigation technology, desalinization, and reused water; these are now a source of knowledge all over the world.

Most high-tech employees are in central Israel

Figures show that Israel is the global leader in the proportion of people employed in high tech - 9%, more than double the medial in the OECD countries; in venture capital investments as a percentage of GDP; and in the ratio of the added value of the information technology sectors to GDP - both goods and services.

Almost half of those employed in high tech are in the computer programming and consultation sectors. One quarter are employed in the production of computers and electronic and optical equipment. Nearly 15% are in scientific research and development, and the rest are in communications services, drug manufacturing, information services, etc.

A large majority of high-tech employees live and work in central Israel. In the central region, where most of them are concentrated, they account for 15% of all employees. The proportion of high-tech jobs in Tel Aviv and the central region has remained steady at 60% for the past 20 years.

In her speech today, however, Flug said, "Although we are world record holders in global high tech, high-tech employees account for only 9% of all employees." The other 90% are the battered and outmoded carriages in the metaphor. They are employed in lower-paid sectors, with a relatively large number of employees in hosting and food services, administration and support, in which both wages and productivity are low.

The investment in research and development, which is high in Israel as a proportion of GDP in comparison with other countries, is concentrated in the high-tech sectors and its products and services. Little is invested in research and development in non-high-tech industries.

The Israel Innovation Authority (formerly the Office of the Chief Scientist) operates a track for supporting R&D in conventional industry that creates and upgrades production processes. In recent years, however, only 5% of the grants have been given to the conventional industries."

The Bank of Israel also notes, "Government investment in infrastructure is relatively low, and burdensome and ineffective regulation contributes to keeping private investment in machinery and equipment relatively low. In addition to limiting future growth potential because of the product factor constraint, this factor also prevents the adoption of advanced technology contained in new equipment."

Published by Globes [online], Israel Business News - www.globes-online.com - on June 19, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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