​Abstract:

This paper describes and analyzes developments in employment, wages and profitability in the information technology industries during the past fifteen years, and the uniqueness of the human capital among those working in these industries in Israel. Data on Bachelor’s degree recipients by profession indicate the large amount of time—more than five years—that passes from the time a positive shock in the industry is observed and demand for workers increases until the end of the period of adjustment between labor supply and demand. The increase in productivity and wages in the information technology industries during the second half of the 1990s led to a sharp increase in the quality of the workforce in these industries, which emphasized the uniqueness of the aggregate human capital of those working in the information technology industries. Most of the electrical and electronics engineers and those with degrees in computer sciences in the economy are employed in the information technology industries, which are export-intensive industries. It is therefore reasonable to assume that the exchange rate and global demand (which affect the nominal product per employee in these industries) affect their wages. Contrary to the opinion that there is a high return for entrepreneurs in information technology, it seems that the high wages of those working in the industry, combined with the unique human capital, constitute the “buffer” for absorbing negative shocks. For instance, between 2001 and 2003, in response to the bursting of the dot-com bubble (and to a certain extent in response to the Intifada as well), real wages per employee post in these industries declined by close to 10 percent, while the proportion of those with academic professions employed in the information technology industries increased. Between 2007 and 2009, in response to the appreciation of the shekel and the decline in global trade, real wages in those industries declined by about 7 percent. It seems, therefore, that the high wages in the information technology industries makes it easier for these industries to absorb negative shocks.