Israeli High-Tech Sector Shows Stability Despite Layoff Reports, AI Drives Structural Shift

A comprehensive survey conducted by the Israel Innovation Authority and Tzaviran among 210 high-tech companies employing around 130,000 workers reveals that the Israeli high-tech sector remains resilient despite widespread reports of layoffs. In the first half of 2026, hiring rates averaged 8%, while layoffs stood at only 2.8%, with voluntary departures at 4.3%, resulting in a nearly stable overall employment level. These findings align with data from the Central Bureau of Statistics showing a 7% employment growth in the sector during the first quarter and approximately 18,000 open positions awaiting fulfillment.

The survey highlights a significant structural transformation within the industry rather than a contraction. Dror Bin, CEO of the Israel Innovation Authority, explained that the labor market is shifting its demand for different skills, with some roles being phased out and new ones emerging that require different expertise. A notable divide exists between software and hardware companies: software firms experienced the heaviest layoffs at 6.6%, more than double the sector average, while hardware companies showed remarkable stability with only 1.1% layoffs. Pharmaceutical and medical tech sectors reported moderate layoffs of 2.7%.

This divergence is largely attributed to the impact of artificial intelligence (AI). Software companies face competitive pressures and rapid efficiency drives, whereas hardware and deep-tech sectors (including chips, computing infrastructure, and defense technologies) benefit from peak demand. However, many software workers displaced find it challenging to transition to hardware roles due to skill gaps.

Contrary to fears that AI is driving mass layoffs, only 7% of companies cited AI as the primary reason for workforce reductions, a modest increase from 2% in previous surveys. Nonetheless, AI significantly influences hiring decisions, with the proportion of companies reducing recruitment due to AI tripling from 3% to 10% within six months. Half of the companies planning layoffs acknowledged AI's impact on their decisions.

Medium-sized companies employing 50 to 200 workers were hit hardest, with an 8.7% layoff rate, over three times the sector average. These firms are more vulnerable to cash flow pressures, exchange rate fluctuations, and rising employment costs. Among companies conducting broad layoffs, 17.6% pointed to currency exchange rates as a direct cause, and 28% of those cutting recruitment linked it to currency volatility.

Looking ahead, over one-third of high-tech employers anticipate reduced hiring in the second half of 2026, nearly double the rate from previous surveys and higher than other economic sectors. The average hiring target is expected to drop from 7.2% to 5.9%, while planned layoffs among companies preparing cuts are projected to rise to 6.4%. The Israel Innovation Authority emphasizes these are employer plans, not actual forecasts, but they indicate a cautious outlook for the sector's near future.

Dror Bin concluded on an optimistic note, stating, "We are not witnessing a weakening high-tech sector, but one undergoing rapid change. The story of 2026 is not how many are laid off, but which skills the market demands."