Israel's AI Revolution Could Raise Productivity While Reshaping Jobs Across Key Economic Sectors: IMF

Israel is well positioned to benefit from AI, with 44.1% of workers likely to see productivity gains, but 23.1% remain vulnerable to job displacement, highlighting the need for urgent investment in skills, education, and lifelong learning. The IMF says expanding AI beyond the high-tech sector while strengthening workforce readiness and inclusive policies will be essential for sustaining economic growth and ensuring AI benefits businesses, governments, and society alike.

Artificial intelligence is set to become one of the biggest drivers of Israel's future economic growth. Still, its success will depend as much on workforce readiness as technological innovation, according to a new International Monetary Fund (IMF) study. While Israel is already a global leader in AI investment and innovation, the report warns that skill shortages, unequal access to education, and uneven AI adoption across industries could limit long-term economic gains. The findings provide valuable lessons not only for Israel but also for governments, development partners, and businesses seeking to balance technological progress with inclusive growth.

Israel's AI Advantage Gives It a Global Competitive Edge

Israel enters the AI era from a position of strength. The IMF ranks the country 18th globally in its AI Preparedness Index, reflecting strong digital infrastructure, innovation capacity, and supportive policies. Around 28% of Israeli firms already use AI, with adoption reaching 83% in information and communication services, 63% in high-tech services and industries, and 55% in financial services. These figures place Israel among the world's leading AI-driven economies.

However, AI adoption remains uneven. Traditional sectors such as manufacturing (28%), transportation (21%), wholesale and retail (20%), construction (14%), and accommodation and food services (12%) have much lower adoption rates. Policymakers therefore face the challenge of extending AI beyond the technology sector so that productivity gains benefit the wider economy rather than a few high-performing industries.

Most Workers Will Benefit, But Many Jobs Face Disruption

The report finds that AI is more likely to transform jobs than eliminate them. Nearly two-thirds of Israeli workers are employed in occupations with high AI exposure, a higher share than in most European economies. Among them, 44.1% work in jobs where AI is expected to complement human skills, improving productivity in professions such as education, healthcare, engineering, and scientific research.

However, 23.1% of workers are employed in occupations with high AI exposure but low complementarity, making them more vulnerable to displacement. Business administration professionals, ICT specialists, sales workers, and some clerical occupations face the greatest risks as AI increasingly automates routine cognitive tasks. Another 32.8% of workers remain in occupations with relatively low AI exposure, mainly in manual and personal service roles.

The private sector, particularly finance, insurance, ICT, and professional services, is expected to experience the largest workforce adjustments. In contrast, public services such as education and healthcare are more likely to use AI to improve efficiency rather than replace employees.

Skills and Inclusion Will Determine AI's Long-Term Success

Despite Israel's technological leadership, the IMF identifies skill shortages as the country's biggest long-term challenge. Demand for AI-related skills is growing much faster than the supply of graduates, creating one of the widest skill gaps among advanced economies studied. Without stronger investment in education and workforce development, businesses could struggle to find qualified talent while many workers risk being left behind.

The report also highlights persistent inequalities. Arab-Israeli and Haredi communities remain underrepresented in the high-tech sector because of lower tertiary education levels and limited participation in STEM fields. Although labor force participation among women in these communities has improved, many workers remain concentrated in lower-skilled occupations.

Highly educated workers are expected to benefit the most from AI, but they also face greater exposure to technological disruption. Nearly 90% of tertiary-educated workers are employed in AI-exposed occupations, while younger workers are likely to experience faster workplace changes as technology reshapes knowledge-intensive careers.

A Roadmap for Governments, Development Partners, and Business

The IMF argues that AI policy must extend beyond innovation funding. Governments should expand STEM education, modernize school curricula, introduce AI education earlier, and strengthen lifelong learning through reskilling, upskilling, and mid-career training. Greater investment in active labor market policies will also help workers transition into emerging occupations.

For international development partners, Israel's experience demonstrates that AI readiness requires investment in education, digital infrastructure, labor market resilience, and responsible AI governance alongside technological innovation. Development finance institutions can support countries by strengthening digital skills and promoting inclusive workforce development.

Private-sector stakeholders also have a critical role. Businesses that invest in AI while simultaneously retraining employees are likely to achieve higher productivity, stronger competitiveness, and faster innovation. Companies that neglect workforce development, however, may face widening talent shortages and slower adoption.

The IMF concludes that Israel has the potential to become one of the world's leading AI-powered economies. Achieving that goal will depend not only on technological excellence but also on ensuring that workers across all sectors and communities have the skills needed to thrive in an AI-driven economy.