Inside the paradox of record investments and fewer jobs.
The true state of Israeli high-tech, one of the most important sectors for the local economy, if not the most important, has remained a mystery for two years. Since the judicial reform and the outbreak of war, the prevailing fear has been that the industry might suffer a severe blow and, with the push of a button, relocate to a quieter, more stable part of the world. Yet high-tech has surprised many with its resilience and stability, which has allowed the government to present stronger macroeconomic data than might have been expected after years of upheaval.
However, the big question is what’s really happening under the hood in Israeli high-tech, and here, there is no clear answer, partly because there is no single definitive indicator of the industry’s true condition. The oldest and most popular measure is the volume of capital raised, which hit a record in the first half of 2025, with figures that would put even 2020 to shame. Yet for some time, institutions like the Aaron Institute for Economic Policy at Reichman University, one of the few bodies conducting serious, in-depth research on the high-tech sector, have argued that the real indicator is not capital raising, a figure that can be massaged in both timing and unverified volume, but employment. And in employment, as the latest official data from the Employment Service show, there is a problem. The trend is moving in the opposite direction, signaling a steady drift away from the peaks of 2021.
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High-tech protest against judicial reform.
(Yuval Chen)
20% of High-Tech Workers Are in the Reserves
There are several reasons for the decline in high-tech employment. The first and most objective factor is the multiple rounds of layoffs carried out by international companies with R&D centers in Israel, as well as local unicorns that over-hired during the boom years. When global interest rates rose and the easy money dried up, these companies realized they needed to cut back. This is not unique to Israel but part of a broader global trend.
The Employment Service data accurately reflects this reality: the first to lose their jobs were senior employees, often in middle management, who are relatively expensive for companies and whose skills sometimes lag behind the technological edge. By the time the war broke out on October 7, the local high-tech industry had begun to show clear signs of recovery — but then many tech workers found themselves called up for extended reserve duty. As of late 2024, about 20% of high-tech workers were serving in the reserves, nearly double their proportion in the broader workforce. While comprehensive data is still scarce, reserve duty clearly affects workforce participation, at least in the short term. Social media is full of stories of layoffs and early retirements caused by burnout after long stints in uniform.
But the biggest game-changer of all, one that is still difficult to quantify, is artificial intelligence. Three years ago, the most successful companies proudly advertised that they were hiring as a sign of growth. Today, the new benchmark for success is actually having fewer employees, which signals a company’s AI edge. Giants like Microsoft have let go of thousands of workers as AI takes over their roles. Around 9,000 high-tech jobs have been cut worldwide in recent months, and the latest dream of a typical startup founder is to build a “one-person unicorn.” The best example is Maor Shlomo, a 31-year-old Israeli entrepreneur who single-handedly built a startup at the start of the year and sold it to Wix for $80 million – a story that resonated globally. The deeper and broader adoption of AI also threatens juniors, the fresh graduates who are supposed to be the industry’s next wave.
So how can the industry show both falling employment and record inflows of capital? And what does this contradiction reveal about its true state? According to the Aaron Institute, despite the troubling and ongoing drop in employment, the high-tech sector’s GDP grew by 11.8% in Q1 2025 compared to the same period last year, a sharper rise than the 6.4% average annual growth between 2007 and 2022. This means worker productivity is sharply increasing. But it also means that high-tech is turning into an even more elite, exclusive club, widening social and economic gaps.
As long as Israel’s geopolitical situation remains unstable, its internal crisis unresolved, and the AI revolution continues to add uncertainty, the future of high-tech employment will be difficult to predict. An announcement like Nvidia’s last week, about building a massive campus to hire thousands of new employees, could move the needle for the entire sector. And ironically, the war has opened another vector that could reshape the trend: the defense industries. Of the sharp rise in exports in Q1, 56% came from defense, and that was even before the conflict with Iran. In the boom years, defense companies struggled to compete with the allure of startups. Now, they’re becoming more attractive, especially to the highly skilled workers laid off from companies like Intel or Microsoft, who fit the defense sector’s needs perfectly.