Research Warns of Israel’s Economic Strain

In 2024, Israel spent NIS 37.5 billion ($12.2 billion) on subsidies, benefits and discounts for the ultra-Orthodox community—NIS 10.83 billion ($3.5 billion) more than it invested in hospitals and higher education combined. Prof. Dan Ben-David, president and founder of the independent Shoresh Institution for Socioeconomic Research, said political priorities had shifted from national to sectoral interests.

Public spending and productivity

Ben-David said Israel’s long-term viability as an advanced economy is at risk. The country depends on a shrinking technology sector while education standards decline, and demographic shifts favor groups that, he said, lack skills needed for a 21st-century economy. He said large numbers of ultra-Orthodox community members neither work nor serve in the IDF.

Israel’s labor productivity in 2024 ranked below every G7 country except Japan, according to Ben-David. It trailed Germany by 34 percent, the United States by 30 percent, France by 28 percent and Italy by 20 percent. Labor productivity changed little from its 2022 figure, despite mass reserve-duty call-ups during the war in Gaza in 2024.

Ben-David said public investment in national infrastructure had helped Israel close its productivity gap and surpass G7 countries by the mid-1970s, but that pattern had reversed. He cited underinvestment in physical infrastructure, healthcare, higher education and human capital. He rejected claims that unusually high defense spending explains shortfalls in civilian investment.

“The problem was never a lack of resources, but a diversion of public funds from national priorities to sectoral and personal ones by the nation's leaders,” Ben-David said. He added that, until recent years, Israel’s civilian expenditures “exceeded or equaled the OECD average.”

Education and workforce

In the 2025 PISA exam, Israel’s average scores in math, science and reading were near the bottom of the OECD, as they had been over the past two decades. Ben-David said the 2025 results were Israel’s worst. He said the national average would have been worse if Haredi boys, who tend not to study those core subjects, had been included.

Around half of children—including Arab Israelis, Haredim and pupils in geographic and social peripheries—receive a subpar education, Ben-David said. He warned that educational outcomes could shape the future workforce and the country’s ability to fund healthcare, welfare and defense.

In Jerusalem, secular Jewish education’s share of primary-school pupils fell from 33 percent in 1988 to 9 percent in 2025. Arabs made up 37 percent of the city’s primary-school pupils in 2025, and Haredim made up 41 percent.

Ben-David said the Haredi fertility rate is three times that of nearly all other population groups in Israel. Haredim accounted for 6 percent of the population aged 50 to 54 in 2023, while their grandchildren made up 26 percent of toddlers.

Employment among Haredi men dropped from more than 80 percent in 1979, the earliest year for which data exists, to about 60 percent in recent years. Ben-David attributed the trend to government incentives not to work. More Haredim are pursuing higher education, he said, but few can overcome the lack of core education in childhood.

The technology sector accounts for 10 percent of the workforce and is 22 percent more productive than the OECD average, Ben-David found. The remaining 90 percent of Israeli workers average 24 percent less. He said 20 percent of workers fund 93 percent of income-tax revenue, while half earn too little to pay income tax.

Emigration and proposed changes

The government’s judicial overhaul effort began in January 2023. Ben-David said multifront wars followed, sparked by the Hamas invasion and massacre on October 7 that year. In 2026, native-born emigrants from Israel, many of them highly educated professionals, exceeded returnees by 160 percent. From 2009 to 2022, annual emigrants exceeded returnees by 43 percent, except in 2020.

Ben-David recommended combining the four current education streams—public secular, religious, Arab and independent Haredi schools—into one system with a largely uniform curriculum and room for parental preferences. He also called for shifting government funding from sectoral to national priorities and enforcing full public transparency. The findings were published with permission from Ben-David.