Migrants and the Startup Nation

Addressing Israel's growing demand for skills by increasing the country's role in the developing world

Israel's Prime Minister Benjamin Netanyahu speaks at The Prime Minister's Israeli Innovation Summit in Tel Aviv, Israel October 25, 2018. REUTERS/Amir Cohen - RC126FB37470

Executive summary

Israel has experienced a structural transformation process that is worthy of studying: from an economy highly reliant on agriculture, to a service-oriented system, and then a net exporter of high-tech manufacturing. This economic growth has gone hand-in-hand with the development of its innovation ecosystem for which the country came to be known as the “Startup Nation.” Today, Israel boasts the largest availability of venture capital as a share of its GDP, making it, for this and other reasons, one of the best locations to create and develop highly innovative startup firms. Israel also places second in the world in terms of research and development (R&D) expenditures relative to its GDP (only recently outdone by South Korea), and is home to R&D facilities of numerous large technology firms from all over the world.

Yet, recently Israel has been facing a problem that might constrain the further development of its fast-growing high-tech sector in the short term: the country cannot keep pace with the growing demand from the high-tech sector for software engineers and other computer-related occupations. The Israeli Innovation Authority (formerly known as the Office of the Chief Scientist of the Ministry of Economy) estimates that over the next decade there will be a shortage of 10,000 engineers and programmers for a growing information and communication technology (ICT) industry that, as of 2018, employs roughly 180,000 workers.

This, of course, is a “good problem” to have; yet, it is of big concern for policymakers in the country, given that current and future economic growth in Israel depends, to a large extent, on the success of its robust and growing high-tech sector.

All the while, Israel faces a seemingly unrelated challenge: an unfulfilled desire to become a main player in assisting developing countries to eliminate poverty and achieve sustainable economic growth. Israel’s official development agency, MASHAV, has stood out by training more than 300,000 individuals from developing countries in areas such as agriculture and irrigation, among others. However, in the absence of large budgets that would allow Israel to play a more significant role as a provider of foreign aid, particularly in a new era where many developing countries have moved toward service-oriented economies, there might be other ways—perhaps more effective and scalable ones—through which Israel can play a more central role in providing development assistance.

In this brief, I argue that the challenges related to the short-term shortage of engineering-related workers in Israel can also be an opportunity for the country to directly contribute to the developing world. In particular, I propose that the shortage of workers in computer-related occupations could be temporarily assuaged by offering short-term visas for highly skilled laborers from developing nations with a background in engineering and computer science. Indeed, this solution has already been devised by the Israeli government, but the implementation of this program could fill two gaps. First, it will diminish possible growth constraints to the high-tech sector due to a shortage of talent, and at the same time, it will foster knowledge transfer between Israel and the developing world through those same workers, thereby expanding its contribution to the developing world.