Israeli high-tech is breaking records despite two and a half years of war, but there is one troubling caveat. In 2025, a 1.1% decline was recorded for the first time ever in the number of employees in Research and Development (R&D) roles in Israel, according to the State of Israeli High-Tech 2025 report published by the Aaron Institute for Economic Policy at Reichman University.
The report’s author, Dr. Sergei Sumkin, said it is too early to determine a definitive cause for this slight decline, which may stem from a range of factors, but it requires close monitoring by policymakers to ensure it is not a sign of brain drain.
The Aaron Institute offers a possible explanation tied to the maturation of high-tech companies. Alongside the drop in development roles, there was a 10% increase in product positions. However, the institute stresses the data requires close tracking to ensure the center of gravity of Israeli innovation is not weakened and the economy continues to generate the next generation of startups.
The data showing a decline, still modest at this stage, in R&D jobs aligns with recent discussions in Israeli high-tech about the dispersal of development personnel outside Israel. This marks a significant shift. Until now, the prevailing view was that startups that begin sales operations hire marketing and sales staff abroad, while development remains a “sacred cow” in Israel.
R&D positions are the core of the local high-tech sector, not only for startups but also for large Israeli and international companies. According to the report, these roles still account for 50% of high-tech employment, compared with 44% in 2017 and 37% in 2012.
In recent years, cracks in this assumption have begun to appear due to the ongoing war, which has caused repeated delays in development because many tech employees are serving in reserve duty, difficulties reaching clients due to reduced flights from Israel and periods of escalation that slow work activity.
Recently, even startups, not just large or mature companies, have begun hiring developers outside Israel. The most concerning trend is the recruitment of former Israelis living in the United States or other countries such as Portugal for development roles, creating Israeli companies in every sense, both in founders and employees, that are based abroad.
The most recent example is cybersecurity company Artemis, which recently raised $70 million in two closely spaced funding rounds. Its founders are Israeli, it is based in the United States and employs many Israelis there, but it has no development center in Israel.
That covers the negative data. The rest of the report presents an encouraging picture of Israel’s most important growth sector, which has continued to function despite the longest war in the country’s history. 2025 was a record-breaking year not only for exits and capital raising but also for productivity gains driven by the expanding use of AI and a sharp rise in overall employment in high-tech, particularly in the defense industry.
After two years of stagnation in employment numbers, high-tech jobs reached 570,000, representing 16.3% of Israel’s total workforce, a return to growth for the first time since October 2023 and placing Israel first in the world in the share of high-tech employment. However, this level has not yet returned to the peaks seen before October 7.
Despite concerns about declining demand for workers due to the AI revolution, the Aaron Institute believes the government’s target of 20% high-tech employment by 2035 is still achievable, though challenging. Reaching it would require annual growth of 3.5%, while in 2025 the increase was only 2.8%.
Dr. Sergei Sumkin, author of the reportPhoto: Oren ShalevThe report also shows a 4.7% rise in productivity in high-tech, despite challenges stemming from the war and the strengthening of the shekel. Sumkin estimates the increase is driven by widespread adoption of AI tools within companies and does not expect AI to negatively affect employment.
According to recently published Anthropic data, Israel ranks first in the world in Claude usage relative to the working-age population.
In the broader view, Sumkin describes high-tech as Israel’s flagship. The 2025 statistics reinforce that characterization. The sector accounted for one-fifth of GDP, one quarter of direct tax revenues and contributed 45% of economic growth. The Wiz acquisition by Google alone contributed 0.5% to reducing the deficit. High-tech exports reached an all-time record of 57%, while defense exports have more than doubled over the past five years.