Israel's high-tech growth masks job losses from AI, geopolitics

In 2025, Israel’s high-tech sector is experiencing a paradox of growth and employment decline.

Despite an 11.8% GDP growth in the first quarter of 2025 compared to the previous year, workforce participation in the industry has been steadily decreasing since 2021, according to data from the Employment Service.

Several factors are contributing to this trend.

Layoffs by both international companies and local unicorns, which expanded rapidly during previous boom years, have significantly affected employment levels.

Rising global interest rates and cost-cutting measures have further led to workforce reductions, especially impacting senior employees in middle management roles.

The ongoing geopolitical situation has also influenced employment.

The rapid adoption of AI is another major factor. Companies are increasingly using AI to enhance productivity, often resulting in reduced workforce sizes.

🔗 Source: Calcalist

🧠 Food for thought

1️⃣ The AI productivity paradox: growth with fewer workers

Israel’s high-tech sector exemplifies a global paradox where record capital investment coexists with declining employment.

Companies worldwide are redefining success metrics, with the “one-person unicorn” becoming an aspirational model rather than large headcounts, as demonstrated by entrepreneur Maor Shlomo who built and sold a startup to Wix for $80 million single-handedly.

This shift reflects broader global patterns where approximately 286,679 planned layoffs were reported in 2025, with companies increasingly using AI capabilities to justify reduced hiring 1.

Despite employment challenges, Israeli high-tech GDP grew by 11.8% in Q1 2025, significantly outpacing the historical average of 6.4% growth, indicating substantial productivity gains with fewer workers.

The tech sector is becoming more elite and exclusive, with AI enhancing worker productivity while simultaneously threatening entry-level positions, creating wider socioeconomic gaps that mirror global trends where 80% of the US workforce could see at least 10% of their tasks impacted by AI 2.