Israeli High-Tech Employment Stable Amid Structural Shift Driven by AI

Despite widespread reports of layoffs in Israel's high-tech sector, new data from the first half of 2026 reveals a more nuanced reality. A comprehensive survey by the Innovation Authority and Tzaviron, covering 210 companies employing about 130,000 workers (over 80% of firms with more than 50 employees), shows overall employment stability. Companies hired an average of 8% new staff while layoffs stood at 2.8%, and voluntary departures at 4.3%, resulting in a near-constant workforce size. Macro data aligns with this, showing 18,000 job openings versus 15,000 job seekers and a 7% employment growth in Q1 2026 according to the Central Bureau of Statistics.

However, the sector is undergoing a historic structural shift. Software companies experienced layoffs at 6.6%, more than double the industry average, mainly due to AI-driven efficiency gains and increased competition. In contrast, hardware, chip, and deep-tech firms expanded rapidly, with layoffs as low as 1.1%, driven by growing global demand for computing infrastructure essential for AI systems. Medical and pharmaceutical tech sectors also maintained low layoff rates at 2.7%.

Layoff rates varied by company size and ownership. Medium-sized firms (50-200 employees) faced the highest layoffs at 8.7%, influenced by cash flow pressures, rising employment costs, and currency fluctuations, which 17.6% to 28% of companies cited as key factors. Israeli growth companies with international operations reported higher layoffs than multinational development centers.

Looking ahead, over one-third of high-tech firms expect reduced hiring in the second half of 2026, nearly double the previous survey's figure. Planned hiring rates are forecast to drop from 7.2% to 5.9%, while planned layoffs among downsizing companies are expected to rise from 4.1% to 6.4%. AI remains a powerful but indirect driver of workforce changes: only 7% of firms cited AI as the main layoff cause, yet AI adoption jumped from 21% to 30%, and companies cutting hiring due to AI tripled from 3% to 10%. Half of firms planning layoffs now attribute decisions partly to AI, up from less than a third previously.

Dror Bin, CEO of the Innovation Authority, emphasized that the sector is not shrinking but rapidly restructuring. Workers displaced from software roles must adapt to new skills in hardware and deep-tech fields. Additionally, AI tools are lowering development barriers, enabling smaller, leaner software startups and potentially sparking a new wave of technological entrepreneurship in the coming years.