The discourse around the impact of artificial intelligence on the labor market tends to be centered on forecasts of how many jobs will be lost due to the new technology.
The future is indeed uncertain, but this debate misses the mark. We now have a clearer view of what is already happening in Israel’s labor market (as of 2025) that should shift the debate toward how to prepare and equip the labor market and the education system for the changes that are unfolding.
The answer to preparedness lies in human capital and a holistic economic approach.
From demo to implementation
Israel’s first dedicated business survey on AI use was conducted last year by the Central Bureau of Statistics (CBS) and was analyzed by the Israel Democracy Institute (IDI). The survey reflects the reality in mid-2025, and it already paints a picture in which AI has moved from demos and pilots to implementation in day-to-day work.
The first takeaway from the data is that Israel is not “late” to adoption. Some 28% of businesses reported using AI in the previous six months at the time of the survey. In that same time frame, the adoption rate in EU businesses was about 20%.
Averages, however, obscure significant gaps in the Israeli economy, so it is critical to dig deeper. The survey finds that AI use in knowledge-intensive industries such as hi-tech is almost three times higher than in traditional industries like manufacturing, trade, and construction.
Geography tells a similar story: The Tel Aviv district reported around 41% adoption, while the Jerusalem district reported adoption around 4%. An uneven diffusion of AI can widen the social and economic divides Israel already struggles with.
The survey suggests that a key reason firms may not be adapting is a matter of knowledge base. When businesses say they don’t plan to adopt AI, the common explanation provided is that AI is “not relevant” for their work.
However, a comparative analysis hints that the real meaning behind this response is “I don’t know enough about AI’s potential.”
In Israel, 55% of manufacturing businesses said AI is not relevant for them; in Germany, only 7% said the same. It is unlikely that AI is inherently less relevant to Israeli factories than to German ones.
A more plausible explanation is a managerial knowledge gap: There are fewer people within firms who can translate the technology into a first-use case and implement it responsibly.
Changing tasks
The survey finds that mass layoffs are not yet happening, but the work that employees are doing is already shifting.
Among Israeli businesses using AI, about 60% reported that tasks previously done by humans are now done by AI – mostly routine/technical tasks (44%) – but also tasks that “require thinking” (16%).
Yet only 9% of businesses reported an impact on the number of employees, of which around 5% reported a “softer” negative impact in the form of recruiting fewer new workers, and 4% reported actually laying off workers.
For now, the loudest signal is task change, not mass layoffs. It does not mean that such layoffs will not happen – we may just be at the beginning of the impact curve. But we can say with more certainty that a change in job descriptions is already underway.
Invest in humans
If adoption is real but uneven, and tasks are shifting, the policy response should be less about projections and more about building capacity. AI is a test of how Israel invests in humans, such as workers, managers, and students.
The first policy arena to adjust is the overemphasis on innovation in the hi-tech sector. Hi-tech employs only about 11% of Israel’s workforce, and AI’s function as a general-purpose technology means it has great potential to be adopted and promote growth across all economic sectors.
Policy measures that lean toward supporting innovation only in the hi-tech sector miss the opportunity AI provides as “a rising tide that lifts all boats.” Policy should emphasize practical support for implementation across traditional economic sectors and small and medium-sized businesses.
Another aspect of realizing the potential of AI relates to professional development. New skills must be acquired by employees to use it effectively.
An IDI analysis points to a concerning trend in which only a minority of working-age adults participated in job-related training in 2023, and Israel’s public spending as a share of GDP on such training is significantly lower than the OECD average. In the age of AI, these trends are unsustainable for Israel.
Additionally, many non-tech business leaders surveyed were not opposed to using AI, but they were naturally cautious, busy, and lacking a clear road map.
Alongside training, there is an opportunity for policymakers to help close the gap by expanding subsidized consulting that helps traditional and smaller firms choose a first-use case, redesign processes, train staff, and establish basic governance.
Finally, adjustments must be made to the education system. The time has come for a systemic rethinking of the manner in which students are taught and achievements are evaluated against the backdrop of the AI tools available to students.
Leadership in both the school and higher education systems must rethink the “what,” ”how,” and “why” of their curriculum. That does not necessarily mean jumping on the AI bandwagon or abandoning the traditional principles of education, but it does mean that “business as usual” is not an option.
When we assess the data underlying the debate over the impact of AI on the labor market, it is already clear that adoption of AI is meaningful and uneven in ways that exacerbate economic gaps and impact employees’ day-to-day work life.
These facts ought to be a call to action for policymakers to ensure that the labor market and the education system are in step with the rapidly changing reality.
An action plan that invests in human capital across the whole economy will build a strong foundation and allow all Israelis to make the most of the opportunities that AI presents. ■
Gilad Be’ery is head of the Israel Democracy Institute’s Economic Reform Program.