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Israeli Economy - Continuing the slide down the slippery slope

By Haim Bior
August 7, 2002

About 20 percent of the workers in the high-tech industry have been laid off and the axe continues to fall. Productivity, which had begun to rise, is now declining, due to low employee morale. The wages of those who have retained their jobs are being threatened with cuts.

Many of the 1,460 employees at Lumenis, which specializes in developing laser devices for cosmetic treatments, finally felt some relief this week, following two months of whispered rumors of layoffs for dozens of workers. The source of this relief was the company's second-quarter financial report, which showed that Lumenis was again making a profit and had increased sales by 6 percent, to $19 million, better than the analysts had forecasted.

"I would like to believe that the improvement in the results will lead to a postponement of the layoffs," says D., a senior engineer at Lumenis, "or at least to fewer layoffs. Even so, the feeling of uncertainty has not dissipated. Suddenly, all the theories of the organizational consultants regarding the connection between fear and worker productivity are manifesting themselves before my eyes."

Many in the high-tech industry, which today employs around 75,000 individuals, fear that the wave of layoffs has not passed. From the beginning of the crisis in early 2000, and up until the end of 2001, some 12,000 high-tech workers were laid off - about half of them from start-up companies. Industry sources estimate that another 3,000 have been laid off in 2002, bringing the total number of dismissals to 15,000.

Predictions have the layoffs continuing for several more months, primarily in the larger companies. Over the next 12 months, 40-50 companies will close their doors, and close to 1,000 more workers will lose their jobs. This does not mean, however, that new workers will not be hired by recovering companies, but the overall employment in the industry will continue to decline. This assessment is shared by managers of companies, venture capital funds and placement agencies.

Employees of Intel Israel have not yet had to face layoffs; but for the first time, 2,500 of the company's workers will go on a two-week vacation, starting September 13. In this way, the company will save millions of shekels in maintenance.

Check Point is another large company that has, till now, not let any workers go, and is also showing no signs that it plans to do so in the near future.

Ayelet Varshviak, CEO of Hever Human Capital, a firm that screens and places workers and provides translation services, says that the prevailing feeling among employees at large companies is one of gloom and doom. She says that after the first round of layoffs that began in March 2002, workers actually increased productivity and their loyalty to their workplaces was undiminished, as they believed that improved performance would ensure their job security.

"Now, after a year-and-a-half of layoffs," says Varshviak, "many workers feel they have no more strength to cope with the situation. The stress under which they work is outweighing their desire to help their organizations in a period of decline. After seeing many of their co-workers dismissed, they feel that whether they make a greater effort or not, the threat of the layoffs constantly hovers over them."

The prolonged crisis in the high-tech industry does not mean that the recruiting of essential workers has ceased completely, or that candidates considered exceptionally brilliant will not be hired. Varshviak notes, however, that companies are spending a lot longer looking for new workers before choosing one who they hope will meet their needs. These days the recruitment process - from the time a position is advertised until a candidate is informed that he has been accepted - is three times longer than it was two years ago. Even graduates of the Technion - Israel Institute of Technology who used be in high demand will be able to find work only if they come with a convincing transcript of high marks.

"In the past, it was enough to have a 70 percent average to find a job with a high-tech company," says Varshviak. "Today, I advise second-year students to make an extra effort to get an 80-90 percent average if they want to find the jobs they are seeking."

Paul Zucker, the CEO of a high-tech company in the biotech field, feels that the crisis in the industry is entering a new stage, which will be accompanied by another round of layoffs.

"We are being affected by the continuing crisis in the United States," says Zucker, adding that over the next few months, human resources and marcom managers will become less important, and the demand for computer network managers will also decrease because companies will hand these fields over to outsourcing contractors.

Zucker believes, on the other hand, that the demand for hardware engineers, as well as electronics and electro-optics engineers will remain high, as will the demand for chemists and physicists in the biotechnology field. Software engineers will have to have a university degree in order to find work; those who studied at community colleges will have a tougher time.

Tali Atzmon, an expert in salary packages, says that most of the "hysterical" wage cuts that stemmed from the crisis are behind us. These were cuts of 10-15 percent in the wages of senior employees, and even greater cuts in the salaries of entry-level employees. Atzmon notes that even though organizations are expected to make further cuts in spending, they may not be via the wages department, but rather via a freeze in hiring, or more layoffs. Fringe benefits and bonuses may also be cut.

David Shay, who heads the applications development section at Hilan-Tech, feels that even though the era of layoffs in the high-tech industry is far from over, companies will try harder to cut costs in other areas as an alternative to layoffs. Shay concurs with Atzmon that fringe benefits will be cut, too, if not wages themselves. Fewer overtime hours will be approved and the official length of the workday will be more strictly enforced.

Shay also expects a substantial drop in employee training programs, which cost up to $200 a day per worker for seminars in Israel and $800-1,000 per day for professional conferences overseas. "Companies will examine every outing of an employee to a training seminar and will postpone less essential programs till things improve," he says.

As far as wage cuts are concerned, Shay feels that only executives will be affected. Even though the savings will not be all that great, when there are cash flow problems, even a saving of 10 percent in the CEO's salary is significant.