Israeli high-tech firms have largely halted job hiring and many are expected to continue layoffs this year, a report on the country’s tech sector showed on Tuesday.

One-quarter of companies have stopped recruiting new employees and another quarter plan more layoffs – many of those planning to let go 5% of their workforce, according to the report by the Israel Innovation Authority and Start Up Nation Policy Institute (SNPI).

“When money pours in, more people are getting hired in a nutshell, and since the middle of last year, we saw a decline in investment,” Dror Bin, CEO of the Israel Innovation Authority, told Reuters.

Israel’s tech sector is a key growth driver, accounting for 15% of economic output, 10% of jobs, more than 50% of exports and 25% of tax income.

On the heels of slower growth, tech firms raised $15 billion last year, down from a record $27 billion in 2021. In the first quarter of 2023, they raised $1.7 billion, down 70% from the $5.8 billion in the first three months of 2022 and its lowest quarterly fundraising level in four years.

In 2022, the number of employees in the high-tech sector increased by just 7.4%, versus 12% in 2021, the SNPI report said. It noted that there were still 17,000 tech jobs open at year’s end, down from 33,000 last April.

“In 2021 and 2022…people just jumped from one position to another. Today, it’s much more difficult to ‘steal talent’ from other companies. But there are still companies that are recruiting, so this is the good news,” Bin said. He noted that of all tech sectors, job losses have been lowest in agriculture, food and clean tech.

“Companies that are solving the big human challenges like health, food and climate are going to be very important in the forefront of innovation in the next decade,” Bin said.

Along with layoffs, one-third of companies do not plan salary raises in 2023, according to the SNPI report.

Bin said the government’s contested judicial overhaul plan, which is now on hold but sparked anger among the public and tech executives and has dampened foreign investment, had had no major influence on hiring so far but posed a “risk” the rest of this year.

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