Israeli Defense Industry Drives Tech Employment to Record Highs Despite AI Layoffs and Strong Shekel

Israel's defense industries are currently driving a sharp rise in tech employment, overcoming challenges posed by a strong shekel and widespread AI-related layoffs. According to the quarterly report from the Aaron Institute obtained by Calcalist, tech sector employment surged by 6.2% in the first quarter of 2026, reaching 424,000 workers, or 12% of the national workforce. Dr. Sergey Somkin, head of the tech sector at the institute and report author, attributes this growth mainly to the defense industry.

The Deep Tech sector, which includes defense companies and chip manufacturers, saw the most significant increase with a 15.4% rise in employment, adding 12,000 jobs in the first three months of the year. Research and development roles also rebounded with a 5.9% increase to 257,500 employees, reversing a previous decline noted in late 2025. Including IT workers in other sectors like banking and telecommunications, total tech-related jobs surpassed 600,000 for the first time, representing 17% of all jobs in Israel. If this trend continues, Israel could meet the 20% tech workforce target set by the 2021 Parlamoter Committee by 2035.

These positive figures contrast with recent layoffs in many tech companies, driven by global AI efficiency trends and the strong shekel making Israeli tech workers more expensive internationally. Notable firms such as WIX, Amdocs, SentinelOne, and others have cut significant staff, mostly in the second quarter, which is not yet reflected in the current report. The shekel's peak against the dollar between April and June also intensified cost pressures.

The defense sector benefits from unprecedented demand due to geopolitical instability in Europe and the ongoing Russia-Ukraine conflict, alongside a fundamental shift in warfare technology since 2023. Air defense systems are in high demand across the Middle East and Europe, with drone threats pushing for new solutions. Elbit Systems, for example, hired 2,000 employees in the past year and plans to recruit the same number by the end of 2026. The chip industry is also gaining strength, boosted by AI infrastructure needs, with companies like Tower Semiconductor and Nova joining the top ten on the Tel Aviv Stock Exchange.

Despite the strong shekel causing a 16.8% drop in tech exports measured in shekels, dollar-denominated exports rose by 16.4%, indicating resilience in unique tech products. Dr. Somkin notes that while the defense and large international companies remain stable with long-term orders, startups face challenges due to shrinking dollar capital inflows. The Finance Ministry recently announced aid for the sector, primarily targeting startups to help them cope with the strong shekel's impact.