Israel's economic future at risk as productivity falls behind G7 nations, report warns

A Shoresh Institution report warns that Israel's total factor productivity has fallen from 9% above the G7 average in 1975 to 15% below it in 2023. The report, authored by Prof. Dan Ben-David, links the decline to weak education, rapid demographic change, and brain drain, warning that the next government must address these threats to long-term economic viability.

A new report from the Shoresh Institution for Socioeconomic Research warns that Israel's economic trajectory has reversed sharply over the past five decades. Total factor productivity, a measure of how efficiently the economy combines labor and capital, stood 15% below the G7 average in 2023, compared with 9% above it in 1975. Output per hour worked tells a similar story: Israel exceeded every G7 country in 1972 but trailed six of the seven by 2024, with output 34% below Germany's and 30% below the US. The report, written by Shoresh President Prof. Dan Ben-David, attributes the decline to a shift away from investment in infrastructure, education, and public services beginning in the 1970s. It highlights three reinforcing trends: weak educational outcomes, rapid demographic change, and the departure of skilled Israelis. Haredi children account for 25% of first graders in 2026, and Arabic-speaking children for another 23%, while haredim make up only 6% of Israelis aged 50-54. PISA assessments place pupils in state-religious schools below 76% of OECD countries and those in secular Jewish schools below 81%. Outside hi-tech, where roughly 90% of Israeli workers are employed, each hour worked generates 24% less value than the OECD average. The highest-earning fifth accounted for 93% of income-tax revenue in 2024, making the country vulnerable when skilled workers leave. The number of Israeli physicians abroad rose from 0.7% of domestic physicians in 2000 to 1.9% in 2023. Ben-David's proposed 'Israel 2.0' program calls for an upgraded compulsory core curriculum, public funding only for compliant schools, and governance reform. 'The window for change is still open – but it is closing,' he said.