Labor Market Chapter State of the Nation Report 2025:
Taub Center researchers Michael Debowy, Prof. Gil S. Epstein, and Prof. Avi Weiss present an overview of the labor market following more than two years of war, highlighting key labor market developments over the past year against the backdrop of trends of the last decade with a view to the challenges ahead.
Despite low unemployment, Israel’s employment rate is not high in international comparison
Despite historically low unemployment — averaging 2.9% Between January and September 2025 — this does not translate into a high employment rate in international terms. According to 2024 data, the employment rate of men aged 15–64 is about 8% lower than the OECD average, compared with a gap of only about 3% a decade ago. By contrast, women’s employment is about 7% higher than the average — an advantage that has narrowed from a gap of about 11% in the past.
The employment gap between non-Haredi Jewish women and Haredi women has nearly closed
At the beginning of 2025, the employment rate of Arab men stood at 77%, slightly below the 2023 peak of 79%, while among Haredi men a renewed decline in employment rates was observed compared with the pre-war period. Non-Haredi Jewish men maintained a high employment rate of about 87%.
Among women, the employment gap between non-Haredi Jewish women and Haredi women has almost disappeared. In the first quarter of 2025, the employment rate in both groups stood at 83%. The employment rate of Arab women rose to 49% in the first half of 2025 and may reach the government’s 2030 target of 53% ahead of schedule.
Employment rate among ages 15–66, by population sector
Geographic and sectoral employment gaps remain deep
Between January and September 2025, the employment rate in the Northern, Southern, and Jerusalem Districts was about 15% lower than the employment rate in the Tel Aviv and Central Districts. Large sectoral gaps are also evident in representation in the high-tech industry: about 20% of non-Haredi Jewish men and “Others” and about 10% of non-Haredi Jewish women and “Others” are employed in high-tech, compared with about 5% of Haredi men and women, about 2% of Arab men, and only about 1% of Arab women.
Reasons for non-employment among ages 25–44: reserve duty, higher education, and yeshiva studies
Many Israelis aged 25–44 did not work in the period from the start of the war through the end of 2024. Among this group, about 25% of non-Haredi Jews and “Others” were absent due to reserve duty, compared with negligible shares in the other groups. In addition, more than 10% of non-Haredi Jews did not work due to academic studies or vocational training, compared with about 6% among Arab men and only about 3% among Arab women and Haredi women and men. Among Haredi men, about 70% of those not employed are yeshiva students.
In 2025, the average Israeli worked more hours but earned lower pay
Despite low levels of unemployment and an increase in hours worked, the past year was marked by a real decline in employee wages, reversing the rises recorded in the previous two years. In the first half of 2025, average monthly wages stood at about NIS 13,600, a decline of about 0.8% compared with the same period in 2024. The annual wage decline in the first half of 2025 appears to have been driven by a sharper fall in output per hour, with its effect on wages moderated by the rise in hours worked. Sharp wage declines were also recorded in high-tech services industries.
Annual change in average wages for employed persons
Productivity gaps between Israel and advanced economies are particularly pronounced in output per hour worked
Labor productivity in Israel is low in international comparison, and the relatively high standard of living relies to a large extent on high employment and long working hours, especially among women. The gap is particularly evident in productivity per hour worked. Between 2003 and 2023, GDP per hour worked in Israel grew by just under 100%, compared with about 115% on average in comparable high-income countries.
Productivity per work hour, Israel and reference countries
Taub Center researchers point to three main reasons for Israel’s low productivity. The first is underinvestment in private and public capital, especially in the physical infrastructure that workers use in production. As Prof. Benjamin Bental and Dr. Labib Shami show in the macroeconomics chapter of this report, narrowing the investment gap in private and public capital — particularly in public infrastructure — could reduce up to half of Israel’s productivity gap relative to other advanced economies. The second reason is the level of human capital. Despite Israel’s high educational attainment, workers’ skill levels are not high in international comparison. Within Israel, basic skills in Arab society and among Haredi men are lower than among the rest of the Jewish population, and these gaps continue to widen. The third reason is low competition in the business sector, partly due to the relative difficulty of doing business in Israel compared with other advanced economies. A combination of investment in physical infrastructure, education, and vocational training, alongside regulatory improvements that promote competition and make it easier to do business, could help narrow the productivity gap and raise living standards in Israel.
Technological change has affected the composition of employment and wages more than productivity
The share of high-tech employment rose by 21% between 2005 and 2024, and information technology intensive industries increased their share of employment by about 13% on average, while less technology intensive industries contracted by about 11%. At the same time, automation and mechanization in manufacturing account for about 40% of the decline in employment in the sector, which lost 34% of its jobs over this period, even as the relative wages of the workers who remained rose by 29%. Over the coming decade, generative artificial intelligence is expected to have an even more significant impact. Estimates suggest it could perform about 20% of the tasks of the average worker in Israel better than a human worker, and more than 50% of tasks in occupations that employ about 16% of workers. Already today, 28% of businesses have adopted the use of artificial intelligence as part of their overall business activity, and 9% of them report having reduced their workforce as a result.