Israel: Selected Issues

This Selected Issues paper assesses the potential impact of Generative AI on Israel’s labor market and benchmarks it against selected European economies. AI offers significant potential to raise productivity, including in traditional industries and the public sector, but it also poses adjustment challenges. Rapid technological change has increased demand for skilled workers beyond supply. While Israel’s labor market is less susceptible to AI-related job displacement than those of other European economies around one-fifth of workers remain at risk. Vulnerabilities are concentrated among employees in high-value added industries, younger workers, and those with tertiary education. Continued efforts to align workforce skills with evolving needs are therefore essential. Spending for active labor market policies in Israel remains low compared to peers. In order to assist workers at risk of displacement, a comprehensive lifelong learning strategy is essential, including reskilling, upskilling, and mid-career training. Targeted policies are also needed to enable Arab-Israeli and Haredi populations to benefit from AI.