Israeli Economy Faces Decline, Warns Major Research Report
Translated & summarized from Ice by baba
A report by the Taub Center warns that Israel's economic future is at risk due to declining productivity, misallocated resources, and educational failures. Productivity has fallen significantly behind G7 averages, and budget priorities favor the Haredi sector over essential services like hospitals and universities. Demographic shifts and a widening gap between high-tech and the rest of the economy, coupled with significant brain drain, further exacerbate the situation. The report proposes a four-point plan to address these critical issues and secure Israel's developed status.
The story in 6 lines · by baba
- Israel's productivity has fallen 15% below G7 averages by 2023, a reversal from its 1975 surplus.
- NIS 37.5 billion in 2024 subsidies for the Haredi sector exceeded combined budgets for hospitals and universities.
- High-tech productivity is 22% above OECD average, while the rest of the economy is 24% below.
- By 2026, 48% of first-graders will be from sectors with lower employment and income rates.
- The proportion of Israeli doctors working abroad nearly tripled to 1.9% by 2023.
- A four-point plan, "Israel 2.0," is proposed to reform education, budget priorities, and governance.
A new report from the Taub Center for Social and Economic Research, titled "Taub Center Guide 2026: The Socio-Economic Threat to Israel," warns that long-term trends driven by shifting national priorities over the past fifty years could jeopardize Israel's status as a developed nation. The report, authored by the center's president, Prof. Dan Ben-David, highlights declining productivity, misallocation of resources, a crisis in education, and brain drain as key threats.
Productivity in Israel has significantly declined relative to G7 nations. While Israel surpassed the G7 average productivity by 9% in 1975, by 2023, it lagged 15% behind the average. Similarly, GDP per hour worked, which exceeded all G7 countries in 1972, fell behind six of the seven by 2024, with a 34% deficit compared to Germany and 30% compared to the United States.
The report challenges the notion that defense spending has harmed civilian investment, stating that civilian expenditure has consistently met or exceeded OECD averages. Instead, it points to a shift in budget priorities, noting that in 2024, benefits, discounts, and subsidies for the Haredi (ultra-Orthodox) sector amounted to NIS 37.5 billion. This figure surpasses the combined budgets for hospitals, universities, and colleges (approximately NIS 26.7 billion) by NIS 10.8 billion, a sum that could have funded eight new public hospitals or ten research universities.
Israel's economy is characterized by deep disparities. The high-tech sector, employing 10% of the workforce, shows productivity 22% above the OECD average. However, the remaining 90% of the economy operates at 24% below the average. This reliance on a small, highly skilled segment of the population, comprising only about 3% of the total population (tech professionals, doctors, senior academics), creates significant economic vulnerability.
The education system faces severe challenges, with demographic shifts impacting future labor market readiness. By 2026, an estimated 48% of first-graders will belong to sectors with lower employment and income rates: 25% Haredi and 23% Arab. This trend is evident in younger age groups as well, with Haredi children constituting 26% of toddlers aged 0-4, compared to 6% of those aged 50-54. PISA 2025 results show Israeli students lagging behind most OECD countries, with Arab students scoring below all OECD nations and most Arab countries tested. Many Haredi boys do not study core subjects or take these exams.
Brain drain is another concern, with the proportion of Israeli doctors working in OECD countries (excluding the US) relative to the total number of doctors in Israel nearly tripling from 0.7% in 2000 to 1.9% in 2023. In 2024, 35,993 Israelis emigrated, compared to 13,820 who returned, a negative net migration of approximately 160% more departures than arrivals.
To counter these trends, Prof. Ben-David proposes "Israel 2.0," a four-point plan: an upgraded, uniform core curriculum for all students; a reallocation of budget priorities away from sectoral allocations towards national goals; a government reform to strengthen checks, balances, and administrative effectiveness; and a constitution to protect fundamental rights. He stresses this is not a left-right issue but a matter of national survival.
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