Israeli high-tech booms, but R&D jobs decline for the first time

Israeli high-tech is breaking records despite two and a half years of war, but there is a troubling asterisk. In 2025, the number of people employed in research and development positions in Israel declined by 1.1% for the first time on record. This is according to the State of Israeli High-Tech 2025 report published by the Aaron Institute for Economic Policy at Reichman University.

The report’s author, Dr. Sergei Sumkin, cautions that it is too early to determine the definitive cause of the decline. It may stem from a combination of factors, but he stresses that policymakers must monitor the trend closely to ensure it does not signal the beginning of a brain drain.

High-tech employees in Herzliya.

(Photo: Dana Koppel)

The Aaron Institute points to a possible explanation tied to the maturation of high-tech companies: alongside the decline in development roles, product positions grew by 10%. Still, the report emphasizes that this shift requires close scrutiny to ensure that the center of gravity of Israeli innovation does not weaken, and that the economy continues to generate the next generation of startups.

The slight decline in development jobs aligns with a growing discourse within Israeli high-tech about the dispersion of R&D talent abroad. This marks a significant shift. Until recently, the prevailing assumption was that while startups might expand marketing and sales teams overseas, development remained a “sacred cow” anchored in Israel.

R&D roles are the core of the local high-tech ecosystem, not only for startups but also for large multinational and Israeli companies. According to the report, these positions still account for 50% of high-tech employment, up from 44% in 2017 and 37% in 2012.

However, cracks in this model have begun to emerge over the past two years. The ongoing war has led to repeated disruptions, including delays caused by reserve duty among high-tech workers, difficulties in reaching customers due to limited flight availability, and periods of escalation that slow the pace of work.

More recently, startups, not just large, mature companies, have begun recruiting developers outside Israel. A particularly concerning trend is the hiring of Israeli professionals living abroad, especially in the United States and countries such as Portugal, for development roles. This has led to the emergence of companies that are Israeli in identity, both in terms of founders and employees, but are effectively based overseas.

One recent example is the cybersecurity company Artemis, which raised $70 million in two consecutive rounds. Its founders are Israeli, and it employs a significant number of Israelis abroad, but it does not maintain a development center in Israel.

Beyond this concerning data point, the report presents a largely positive picture of Israel’s most critical growth engine, which continues to function despite the longest war in the country’s history. In 2025, the sector set records not only in exits and capital raising, but also in labor productivity, driven in part by the growing adoption of artificial intelligence, and in overall employment, particularly in the defense industry.

After two years of stagnation, the number of high-tech employees rose to 570,000, representing 16.3% of Israel’s total workforce. This marks a return to growth for the first time since October 2023 and places Israel first globally in the share of high-tech employment. However, this figure has yet to return to its pre-October 7 peak.

Despite concerns that AI could reduce demand for workers, the Aaron Institute believes that the government’s target of 20% of the workforce employed in high-tech by 2035 remains achievable, though challenging. Meeting this goal would require annual growth of 3.5%, while employment grew by only 2.8% in 2025.

The report also highlights a 4.7% increase in labor productivity, despite wartime disruptions and the strengthening of the shekel. Sumkin attributes this improvement largely to the widespread adoption of AI tools and does not anticipate significant job losses as a result of their integration. Supporting this view, recent data from Anthropic shows that Israel ranks first globally in Claude usage relative to its working-age population.

At a broader level, Sumkin describes high-tech as “the Israeli aircraft carrier.” The 2025 data reinforces that characterization: the sector accounted for roughly 20% of GDP, a quarter of direct tax revenues, and 45% of overall economic growth. The sale of Wiz to Google alone contributed an estimated 0.5% toward reducing the budget deficit. High-tech exports reached a record 57%, while defense exports more than doubled over the past five years.