Startup Nation Economic Insight Series: H1 2024 Israeli High-Tech Exports & GDP
A joint Spotlight by Aaron Institute for Economic Policy and Startup Nation Finder
September 30, 2024
Introduction
Startup Nation Central, in partnership with the Aaron Institute for Economic Policy, is delivering a critical economic analysis of Israel’s tech ecosystem. Combining Central Bureau of Statistics (CBS) data with Finder’s ecosystem insights provides a detailed understanding of the sector’s current challenges and opportunities.
For those interested in gaining early access to data and insights, we are launching an ecosystem economic dashboard. This dashboard will provide comprehensive economic data and analysis, empowering stakeholders to monitor key economic metrics interactively. We invite you to register to receive updates and gain early access to this valuable tool.
Key Findings
The high-tech sector employs 12% of the workforce, generates 20% of Israel’s GDP, accounts for roughly half of the country’s exports, and contributes 40% of the economic growth. This past year, the importance of the sector became undeniable. As highlighted in this report, 1.8% growth helped mitigate broader economic contraction, which stood at -1.2% in the first half of 2024. Without high-tech, the contraction would have been far worse.
Nonetheless, the slowdown in high tech, reflected in declining growth in high-tech exports and decline in employment, poses a serious threat.
We are at a critical juncture. The government must act decisively. No action is a choice, and the cost of inaction could be catastrophic—not only for high-tech but for Israel’s entire economy. Supporting high tech, including research and development, innovation, and digitization, is essential to safeguard Israel’s growth and prosperity.
Dr. Sergei Sumkin, Senior Researcher, Aaron Institute for Economic Policy
Yariv Lotan, VP of Product, Data and Insights, Startup Nation Central
Early warning signals: contracting exports and slowing GDP growth
High-tech exports declined in H1 2024 by 1.1% (compared to H1 2023, in US dollar terms), following a 3.4% increase in 2023 and 10.4% average annual growth rates during 2017-2022. However, the 1.1% decline in exports (in U.S. currency) is lower than the 1.7% decline which was observed in employment, leading to a 0.7% increase in exports per employee. This is in line with the growth pattern in 2023 in dollar terms, but lower than the 2.8% average annual increase during 2017-2022.
High-tech exports account for approximately 90% of the sector’s GDP and there is a high correlation of 0.87 between exports (per employee) and GDP (per employee). Between 2007 and 2022 the export per employee and GDP per employee grew at an average annual growth rate of 2.3% and 2.0% respectively.
In the first half of 2024 compared to the first half of 2023, the growth rate in exports per employee was only 0.7% in dollar terms. The strengthening of the dollar against the shekel by 2.8% contributed to raising exports per employee to 3.5% in NIS terms. This is expected, due to the high correlation, to align with a similar increase (ceteris paribus) in GDP per employee (labor productivity). Extrapolating from 3.5%, the 1.7% decrease in high-tech employment leads to a calculated 1.8% growth in the sector. This growth mitigates the overall economic contraction of -1.3% in the first half of 2024 and would have been even lower without high tech.
| Growth Components | H1 2024 vs. H1 2023 | Annual Growth Rate 2007-2022 |
| High-tech export per employee | 3.5% | 2.3% |
| High-tech GDP per employee | 3.5%* | 2.0% |
| High-tech employment | -1.7% | 4.4% |
| High-tech GDP | 1.8% | 6.4% |
| Total GDP | -1.3% | 3.9% |
* deducted ceteris paribus from historical correlation
Decline in high-tech employment, increase in R&D professions
The high-tech sector experienced a 1.7% decline in employment in H1 2024 compared to H1 2023. This negative development follows a 2.6% increase in high-tech jobs in 2023, an average of 7.4% during 2017-2022, and 4.8% during 2012-2017.
The decline was primarily concentrated in Product and Operations, which saw a significant drop of 9.2% and 8.6% respectively. Contrarily, R&D professions experienced a 5.8% increase.
Profession | H1 2024 | vs. H1 2023 | Annual Growth Rate 2022-2023 | Annual Growth Rate 2017-2022 |
Product, QA, Data | 79K | -9.2% | -2.8% | +9.3% |
Business, Administrative | 111K | -8.6% | +5.9% | +3.3% |
R&D Employees | 208K | +5.8% | +3.2% | +9.4% |
All High-tech Employees | 398K | -1.7% | 2.6% | 7.4% |
The trend of R&D growth taken together with reductions in other professions may indicate that high-tech companies are focusing on core activities or possibly relocating abroad. This trend, combined with higher employee productivity (in terms of exports per employee as shown in the next chapter), is probably the cause for the 5.2% increase in average wage insofar as average wages for R&D positions are higher.
Software companies were acutely affected, with a 2.6% decrease in employment, while Pharmaceutical and Hardware companies saw a slight increase of 0.5%.
Company Type | H1 2024 | vs. H1 2023 | Annual Growth Rate 2022-2023 | Annual Growth Rate 2017-2022 |
Software | 288K | -2.6% | 2.5% | 11.1% |
Hardware, Pharmaceutical | 110K | +0.5% | 3.1% | 0.3% |
All High-tech Employees | 398K | -1.7% | 2.6% | 7.4% |
Summary
This report by Startup Nation Central and the Aaron Institute for Economic Policy highlights the state of Israel’s high-tech sector in the first half of 2024. Despite the broader economic contraction (-1.2% in GDP), the high-tech sector saw 1.8% growth, cushioning the overall decline. However, there are some alarming indicators, including a negative growth rate of high-tech exports.
Moving forward, it is essential to closely monitor these trends and other key metrics in the sector. The government’s role in supporting research, innovation, and digitization is crucial to ensuring the high-tech industry continues to act as the engine of Israel’s economic growth, especially in times of uncertainty.
The report was written by Aaron Gefen, Senior Business Data Analyst, Startup Nation Central and Einat Ben Ari, Head of Data and Insights, Startup Nation Central