A new Israeli study has warned of what it describes as a “hidden existential threat” to Israel’s future, identifying deepening economic weaknesses, educational failures, demographic changes and a growing brain drain as interconnected dangers that could lead to long-term economic and social collapse.
Published just two weeks before elections for the 26th Knesset, the study argues that the greatest threat to Israel’s future may not be an immediate military confrontation, but structural weaknesses that have developed over several decades and are increasingly undermining its ability to sustain economic growth.
The report, titled Shoresh Handbook 2026: Israel’s Economic and Social Threat, was prepared by Professor Dan Ben-David, president of the Shoresh Institution for Socioeconomic Research.
According to the Israeli news website Walla, the findings reveal how declining productivity, educational disparities, demographic shifts and the emigration of highly skilled professionals are converging into a single major threat to Israel’s future.
The study traces the roots of these challenges to a fundamental shift in national priorities that began approximately five decades ago.
Brain Drain Threatens Israel’s Limited Pool of Skilled Professionals
Professor Ben-David warned that Israel’s economic and scientific strengths depend on a relatively small segment of its population, while demographic changes and educational inequalities are making it increasingly difficult to expand that skilled workforce.
At the same time, the departure of highly educated and professionally qualified individuals is already weakening the country’s existing capabilities.
According to Ben-David, the human capital supporting Israel’s centres of excellence is limited, demographic and educational trends are restricting its expansion, and brain drain is already depleting the available talent.
The study argues that these pressures are particularly concerning because Israel’s long-term economic sustainability depends on maintaining and expanding a highly productive workforce.
However, the findings suggest that the country has been moving in the opposite direction for decades.
Israel’s Productivity Has Fallen Behind Leading Economies
One of the study’s most striking findings concerns the long-term reversal in Israel’s total factor productivity, a measure of how efficiently an economy combines labour, capital and other resources to generate output.
Total factor productivity is considered a critical determinant of sustainable economic growth.
In 1954, Israel’s total factor productivity was 27 per cent below the average of the Group of Seven (G7) advanced economies.
Over the following two decades, Israel closed that gap and eventually surpassed the G7 average by 9 per cent in 1975.
However, the trend subsequently reversed.
By 2023, Israel’s total factor productivity had fallen to 15 per cent below the G7 average, marking a substantial deterioration in its relative economic performance.
The decline was also evident in labour productivity, which measures gross domestic product generated per hour worked.
In 1972, Israel’s labour productivity exceeded that of every G7 country.
By 2024, however, Israel had fallen behind six of the seven countries.
The study found that Israeli labour productivity was:
- 34 per cent lower than Germany’s.
- 30 per cent lower than that of the United States.
These comparisons illustrate how Israel’s relative productivity position has deteriorated despite the growth of its internationally recognised technology sector.
According to Ben-David, this reversal coincided with a fundamental change in national spending priorities.
Study Challenges Claims That Military Spending Caused the Decline
The research questions the argument that Israel’s heavy security expenditure deprived its economy of the resources needed for long-term civilian investment.
Ben-David pointed out that Israel’s civilian expenditure remained comparable to, or higher than, the average of Organisation for Economic Co-operation and Development (OECD) countries for decades.
The central issue, according to the study, is therefore not simply the availability of public resources, but how successive governments have chosen to allocate them.
This distinction is particularly evident in the financial support provided to Israel’s ultra-Orthodox Jewish community, commonly known as the Haredim.
In 2024, the combined value of government subsidies, exemptions and benefits allocated to the Haredi community reached 37.5 billion Israeli shekels.
By comparison, Israel spent approximately 26.7 billion shekels on hospitals, universities and academic colleges combined during the same year.
This means that the financial support directed towards the Haredi community amounted to approximately 1.4 times the combined expenditure on those healthcare and higher education institutions.
According to the Shoresh Handbook, the difference of approximately 10.8 billion shekels could alternatively have financed the construction of eight additional hospitals or ten additional research universities.
The comparison reflects the study’s broader argument that Israel’s long-term challenges are closely connected to decisions about national priorities and the distribution of public resources.
A High-Tech Economy Divided Between Two Different Workforces
The report also identifies an increasingly pronounced productivity divide between Israel’s high-tech sector and the rest of its economy.
In 2024, the high-tech sector employed approximately 10 per cent of Israel’s workforce.
Labour productivity within that sector exceeded the OECD average by 22 per cent.
However, the remaining 90 per cent of Israeli workers had labour productivity levels 24 per cent below the OECD average.
The figures illustrate a structural imbalance in which a relatively small, highly productive sector operates alongside a much larger workforce with significantly weaker productivity.
This disparity challenges the assumption that the success of Israel’s technology industry necessarily reflects the economic strength of the broader population.
The study suggests that the country’s highly developed technology sector cannot, by itself, compensate for persistent productivity weaknesses across most of the labour market.
Just 3 Per Cent of the Population Supports Key Centres of Excellence
Another central finding concerns the relatively small proportion of Israel’s population underpinning some of its most important professional, scientific and technological institutions.
According to the study, people employed in technological professions within the high-tech sector, physicians and senior academic faculty at research universities collectively account for approximately 3 per cent of Israel’s total population.
These groups form part of the human capital supporting some of Israel’s principal centres of excellence.
Ben-David warned that the challenge is not merely to retain these professionals, but to expand the skilled population substantially over the coming generations.
The existing dependence on such a small group becomes particularly significant when considered alongside educational deficiencies, demographic changes and the continued departure of skilled professionals.
The study argues that the composition and qualifications of the future workforce are already being shaped by the education system.
As Ben-David emphasised, Israel’s future workforce is not a theoretical projection. It is already sitting in classrooms.
Demographic Changes Are Reshaping Israel’s Future Workforce
The research identifies significant demographic changes among Israel’s youngest population groups, particularly the rapid growth of the Haredi community.
According to the study, in 2026:
- Haredi pupils account for 25 per cent of all first-grade students.
- Arabic-speaking pupils account for another 23 per cent of first-grade students.
Together, these groups represent nearly half of children entering the first year of primary education.
The demographic transformation is especially pronounced within the Haredi population.
While Haredim represent approximately 6 per cent of Israelis aged between 50 and 54, they account for approximately 26 per cent of children aged four and under.
This difference illustrates the speed at which the population’s composition is changing between generations.
The study places particular emphasis on the educational preparation of these younger generations, warning that significant sections of the future workforce are not receiving the skills required to participate effectively in a modern economy.
The demographic changes themselves are presented alongside a broader concern about unequal educational opportunities and the limited acquisition of core academic skills.
Educational Performance Raises Concerns About Future Economic Growth
The report highlights international educational comparisons as further evidence of the challenges facing Israel’s future workforce.
According to the study’s presentation of the 2025 Programme for International Student Assessment (PISA) results, students in Israel’s state-religious education system performed below their counterparts in 76 per cent of OECD countries.
Students in Israel’s general state education system also performed below their counterparts in 81 per cent of OECD countries.
These findings point to substantial educational weaknesses even within the school systems that participate in international assessments.
The situation is further complicated by the education received by many Haredi boys.
According to the study, the vast majority of Haredi boys do not study the full range of core academic subjects covered by PISA assessments and do not participate in the examinations.
Consequently, their educational preparation is not fully reflected in these international comparisons.
Ben-David warned that the economic implications extend well beyond present-day academic performance.
The children currently attending Israeli schools will form the country’s future labour force, making their educational opportunities and qualifications decisive factors in long-term economic development.
Without substantial improvements in education and workforce preparation, the study suggests that Israel could face increasing difficulty expanding the highly skilled population on which its economic and technological strengths depend.
Arad Illustrates the Connection Between Demographic Change and Economic Decline
The southern Israeli city of Arad is presented as a case study illustrating the pace of demographic transformation and its association with changes in socioeconomic conditions.
According to the Shoresh research, Arad has fallen three levels within Israel’s ten-tier socioeconomic ranking since 1995.
During the same period, the composition of the city’s primary school population changed dramatically.
In 2000, Haredi pupils accounted for 21 per cent of primary school students in Arad.
By 2026, that proportion had risen to 75 per cent.
Meanwhile, the proportion of pupils attending the general state education system declined from 75 per cent to 20 per cent.
These figures demonstrate the extent of the transformation in the city’s educational demographics over slightly more than two decades.
The study presents Arad as an example of the wider national challenges associated with rapid demographic change, educational disparities and declining socioeconomic standing.
A Growing Share of the Future Workforce Lacks Essential Skills
The Shoresh Handbook warns that the combination of these trends could have serious consequences at the national level.
Israel’s future workforce is increasingly composed of population groups in which significant numbers of children are not currently receiving the educational tools and skills necessary to participate effectively in a modern economy.
At the same time, the country’s existing centres of excellence remain dependent on a relatively small proportion of highly qualified professionals, while brain drain is already reducing the available human capital.
The findings portray an economy facing several interconnected pressures: declining productivity relative to leading developed countries, substantial differences between its high-tech sector and the wider workforce, changing demographic patterns, educational shortcomings and public spending priorities that the researchers argue have contributed to long-term structural weaknesses.
According to the study, these developments should not be viewed as isolated economic or social problems.
Together, they constitute what the researchers identify as a potentially existential socioeconomic threat to Israel’s future, one whose consequences could become increasingly difficult to reverse if the underlying structural challenges remain unaddressed.
