Israeli high-tech faces mounting brain drain amid AI disruption and war strain

For decades, Israeli high-tech has powered the country's economy, generating nearly a fifth of its GDP and almost 60% of its exports. In 2025 alone, it was responsible for roughly half of the country's economic growth. However, industry leaders now warn that the sector's biggest advantage, its people, is slowly slipping away.

Economist Alex Coman says, in the near term, Israel's economy will survive, but in the long term, it's going to be devastating. "I cannot overestimate the threat," Coman said.

Quality Assurance Manager Alex Grinberg says he now manages a team of AI agents instead of only software developers. "I created a system that works fully automated with agents, and they do the job that my workers used to do." He said the AI agents "took the job of the workers," and that while mistakes were common at first, "they learn pretty fast, even at a scary pace."

The introduction of AI is already changing the job market. Grinberg points out that graduates leaving university are increasingly unable to find IT jobs, adding, "in 3 to 5 years, things will get more complicated because at some point the AI will be able to replace a human."

But it's not only the job market. The ongoing war with Iran and its proxies has stretched reserve duty for months and made investors more cautious, while a strong shekel has made Israeli employees more expensive relative to competitors abroad. That, combined with an increasingly growing cost of living, means Israel is experiencing a brain drain. Since 2019, the share of Israeli R&D employees working inside Israel has dropped from 69% to 62%.

Coman says that because the shekel is strong versus the dollar, strong versus the dollar, "sales we make abroad that in the past covered salaries and office rent no longer do that."

Since the war began, more than 800 Israeli high-tech employees have been relocating abroad long-term each month, about 70% more than before the war. 800 may not seem like a lot, but it is substantial considering the small size of Israel's tech sector, which employs only about 400,000 people. This is only one in every ten workers in Israel, but it generates nearly a fifth of the country's economy, almost 60% of exports and around a quarter of all income tax revenue.

Coman warns that Israel's missile defense capabilities rely on the strength of its high-tech sector, saying, "once this brain leaves the country, we are going to be much more exposed to these threats."

The government has introduced tax incentives to attract Israeli tech workers back home, offered incentives for investors, and committed around 1 billion shekels ($340 million) to a national AI strategy.

Tel Aviv University professor Nadav Cohen believes Israel is unlikely to lead in general AI given the exponentially growing competition from the US and China. However, Cohen believes Israel could lead in "physical AI," or AI applied to robotics, manufacturing, healthcare and drones. He cited Israel's defense ecosystem, strong academic foundations in AI theory and mathematics, and a tightly coupled startup ecosystem as advantages.

According to Cohen, Israel can no longer compete on cost with regions like Eastern Europe or India, and should instead focus on areas "where we are going to be top notch in terms of our performance." He added that software engineering students should remain mindful that "programming on its own is not enough these days" and should seek out specialized fields where they can gain an edge.