Israel's Tech Sector Sees Job Growth Amid Shifting Skill Demands

Israel's technology sector has reached approximately 595,700 workers, signaling a notable recovery and nearing the national goal of 20% of the workforce in tech by 2035. This growth contrasts with a slower average annual rate of 1.6% seen between 2023 and 2025. However, the overall increase masks a more complex reality, with uneven expansion across sub-sectors and a shift in demanded skills. The sector experienced a slowdown in the second quarter, with profitability impacted by a stronger shekel, increased reliance on global tech giants, a decline in Haredi employment, and stagnation in "High-Tech Bagrut" (high school diplomas qualifying for the sector).

A survey by the Israel Innovation Authority revealed that while overall employment remained relatively stable in the first half of the year due to hiring and voluntary departures balancing out layoffs, significant disparities exist. Software companies saw a 6.6% layoff rate, compared to 1.1% in hardware and 2.7% in medical tech and pharmaceuticals. This indicates a sector in transition, with a growing demand for skills in areas like semiconductors, computing infrastructure, and deep tech, while some software firms face restructuring.

The increasing adoption of artificial intelligence tools is a key factor influencing hiring decisions and skill requirements. The proportion of companies using AI extensively in their products rose from 21% to 30% in six months, and those reducing staff due to AI implementation increased from 3% to 10%. While AI is not yet directly replacing large numbers of workers, it is prompting companies to re-evaluate necessary job roles and skills, leading to a demand for new specializations.

Future outlooks suggest caution, with over a third of tech companies anticipating a decrease in hiring for the second half of the year. Planned hiring rates are expected to drop from 7.2% to 5.9%, while planned layoffs are projected to rise from 4.1% to 6.4%. These figures represent company plans rather than definitive employment outcomes.

The tech labor market is not in a simple boom or bust cycle but is undergoing a significant reshaping. While it continues to be a major employer, the recovery is characterized by a redistribution of demand, a second-quarter slowdown, and profitability pressures from the strong shekel. For job seekers, the focus is shifting from the sheer number of available positions to the specific skills companies are seeking and the ability to transition between declining and growing fields.