Technology
High tech companies growing fast, but rest of Israel’s economy can’t keep pace
According to the latest report, the high-tech industry is developing rapidly, Israel’s state welfare expenditure has declined compared with other OECD countries, which further widens the already large gap between scientific and technological personnel and other personnel.
Avigdor Leiberman, Israel’s finance minister, said: “Poor countries don’t have well-developed welfare programs.” He said: “A strong welfare program can only work in a rich country, which is why we need to be profitable in the first place.
The Israeli government prefers to invest in R&D, and R&D, in turn, leads to growth.” However, statistics show that investing in R&D does not necessarily help strengthen the welfare system, suggesting that Leiberman is actually wrong.
Israel leads other OECD countries in R&D investment, spending 4.9% of the country’s GDP on R&D in 2019. Still, Israel ranks 29th in state welfare spending, with only 16.3% of GDP going to social programs.
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According to the Israel National Bureau of Statistics, expenditures on state welfare programs include funds distributed to families, services and payments for the elderly, children, adolescents, the disabled, the unemployed, and expenditures on employment promotion programs.
In the other 35 OECD countries, there is a strong correlation between R&D investment and welfare spending. As R&D investment increases, so does state welfare spending, and vice versa. The only exceptions are Israel and South Korea, which rank among the top in government R&D investment but lag behind others in civil society welfare.
However, unlike South Korea – between 2010 and 2019, South Korea’s R&D investment increased by 1.3%, and social welfare expenditure increased by 2.3%, while Israel’s R&D investment increased by 1%, but social welfare expenditure increased by only 1.65%.
Wage gap is widening
Most of the R&D investment goes to high-tech industries. Although the proportion of those working in R&D and high-tech industries is unknown, they are consistently the highest-paid group in Israel.
According to a recent report by CBS, the average salary for high-tech R&D workers in Israel in 2021 will be NIS 30,791 ($9,490) per month, more than five times the salary of the lowest earners and higher than the national average salary. nearly 3 times. Over the past decade, statistics show that since 2011, wages for the lowest earners in Israel have risen by 29%.
While the national average wage has risen by 34%, and the average wage in the high-tech industry has soared by 54%. In Israel, the lowest earners earn NIS 5,300 ($1,630) per month, while the national average is NIS 11,774 ($3,630) per month, a 122 percent gap. However, the average salary in the high-tech industry is NIS 26,494 ($8,160) per month, almost five times that of the lowest earners.
At the same time, the gap between the average wage in the high-tech industry and the average wage in the broader economy has grown to 29% in a decade. By the end of 2021, the average salary in the high-tech industry in Israel will increase to nearly three times (2.25 times) the national average monthly salary.
Lieberman ignores the fact that R&D investment widens the wage gap in Israel and also increases socioeconomic disparities. In order to invest in economic growth – which Lieberman insists will produce a strong welfare system – the state is preventing parts of the population from earning more, and a stronger welfare system is urgently needed.
The Israeli high-tech ecosystem is significant and significant in the Israeli economy. Although high-tech employees account for only 10% of the workforce, high-tech companies produce products that account for 15% of Israel’s GDP and 43% of Israel’s exports, and their employees pay 25% of income tax.
The widening socioeconomic disparity in Israel due to high-tech development is even more apparent when minority groups are surveyed. Two-thirds of high-tech workers are male, 98 percent are Jewish-Israeli and only 2 percent are Arab, according to the CBS survey.
In addition, most high-tech employment centers are concentrated in central Israel, which also greatly increases the wage gap between surrounding cities and central Israel.
The wage gap between people living in central Israel and surrounding towns can also be seen in the high-tech industry. According to CBS data, 2,000 start-ups were active in the Tel Aviv area in 2019, with employees earning an average salary of NIS 23,231 ($7,160) per month.
By comparison, 1,150 start-ups are active in central Israel, and employees earn an average salary of NIS 20,384 ($6,280) per month. However, only 181 startups are active in northern Israel, with an average salary of NIS 19,538 ($6,020) per month, while a similar number of startups (124) are active in southern Israel, with an average salary of NIS 17,258 ($5,320) per month.
Invest in training programs
According to the Israel Innovation Authority, 89% of R&D spending comes from the private sector, 8.6% from higher education institutions, 1% from the voluntary sector, and only 1.4% from the public sector. These data seem to suggest that the state’s ability to control socioeconomic disparities through R&D investment is trivial compared to the private sector’s influence in this regard.
However, the private sector has neither the capacity nor the obligation to take care of the well-being of the nation’s citizens. This is the responsibility of the state alone, although it does not appear to be doing so.
On the one hand, the state encourages more investment in R&D and Israel’s high-tech industries, which make a huge contribution to the Israeli economy but are also widening Israel’s socioeconomic disparities. On the other hand, the state is reducing state welfare spending, but not doing enough to close socioeconomic disparities.
In this sense, the state is not creating enough jobs for people in geographically marginalized areas. The minimum wage is expected to increase by NIS 100 ($30.80) per month in the coming year, to NIS 700 ($215) per month by 2026.