Within Israel’s first two and a half decades, the country’s labor productivity – the average amount that Israelis produce per hour of work, which in turn impacts hourly wages –rose to a level above each of the G7 countries.

Following the pivot in Israel’s national priorities in the mid-1970s, Israel’s labor productivity fell below all but one of the G7 countries by 2024.

Israel’s unusually high defense expenditures are often mentioned as a reason for shortfalls in the country’s civilian spending. However, in the mid-1970s, when Israel pivoted to its current socioeconomic path, the country’s civilian government expenditures (that is, after deducting defense spending) exceeded the OECD average.

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.

The pivot in Israel’s national priorities led to huge domestic imbalances. While productivity of just 10% of the workforce (hi-tech) exceeds the OECD average by 22%, average productivity of the remaining 90% of the Israeli workforce is 24% below the OECD. Just 20% of the workers fund 93% of all income tax revenue (rising by ten percentage points since 2000) while half of the income earners are so poor that they do not pay any income tax whatsoever.

A developed world nation cannot rest indefinitely on such a narrow productive and fiscal foundation.

Non-Haredi Jewish households, on average, pay more in taxes than they receive in government benefits and services. The picture flips for Arab-Israelis, and especially for Haredim, who receive considerably more than they provide.

As the groups with weak labor-market outcomes become ever larger shares of the population, the burden on the relatively small population grows, threatening future fiscal capacity needed for healthcare, education, infrastructure, and defense.

The annual value of public subsidies, discounts and benefits received by Haredim exceed total government spending on Israel’s universities and hospitals. The implication is that resources needed to expand human capital, increase healthcare capacity, and heighten national resilience are being diverted toward non-work incentives and the deprivation of a basic education.

The result is a deterioration of Israel’s core economic and national foundations. This is just one example of the direction that the pivot in national priorities has taken Israel from the 1970s to the present.

The merging between Israel’s education system and its rapidly changing demographics has created a national security challenge of existential proportions.

Roughly half of the Israel’s children (including Arab-Israelis, Haredim and pupils in Israel’s geographic and social peripheries) are receiving a third world education – and they belong to the fastest growing population groups. When they become half of the adults, and eventually a majority, they will only be able to maintain a third world economy, which will not be able to support first world healthcare or welfare – or the first world defense necessary for Israel’s physical survival.

Contrary to conventional wisdom in Israel, Haredi men once exhibited fairly high employment rates. Over the years, as the subsidies, benefits and other non-work incentives soared, and as the education that they received (nearly all Haredi boys are deprived of any core education beyond eighth grade, with very little core studies before then) decreasingly fit a modern economy, employment rates among Haredi men fell from over 80% in 1979 (the earliest year for which such data exists) to about 60% in recent years.

The Haredi share of 35-54 men in 2024 (8.2%) was three and a half times their share in 1979 (2.3%). This is not a sustainable trajectory.

While increasing numbers of Haredim attempt the academic route, few are able to overcome the lack of a core education that they did not receive as children. The share of Haredi men and women with academic degrees is very low – and in the case of the men, nearly unchanged over the past two decades.

There are no shortcuts in education. With the Haredi population growing so rapidly, the consequences are increasingly national in scale: Israel’s future labor-force skills are being shaped – and constrained – decades before these children enter the labor market.

The share of Haredim in the population is doubling every 25 years. Thus, while Haredim comprise just 6% of the 50-54 year-old population, their grandchildren comprise 26% of the toddlers. This is a four-fold increase in just two generations.

A demographic transformation of this speed and magnitude has profound implications for Israel’s future. Continuing to deny Haredim the education that would enable them to pursue these paths is making Israel’s national trajectory increasingly unsustainable.

During the years 1995-2019, Jerusalem, Beit Shemesh, Arad and Givat Zeev recorded the largest socioeconomic declines (three classifications) among Israel’s more than 200 municipalities. These drops underscore how changes in population composition, education, employment and income can fundamentally alter a locality’s socioeconomic trajectory.

Between 1988 and 2025, the share of primary school pupils in Jerusalem’s secular Jewish education stream fell from 33% to just 9%. In 2025, Arabs comprised 37% of the city’s primary school pupils and Haredim another 41%.

The speed of the demographic transformations in three municipalities that fell the furthest in the socioeconomic rankings, Beit Shemesh, Arad, and Givat Zeev, has been extraordinary. In just 26 years, secular and religious (non-Haredi) pupils went from a large majority to a negligible minority in each of the towns. By 2026, the overwhelming majority in all three towns were Haredi pupils, most of whom are denied the core education needed for economic self-sufficiency and an understanding of basic civil rights and liberties.

These towns have Israel to support them financially and to defend them. Who will support and defend Israel when the entire country begins to resemble these towns?

The judicial coup attempt that began in January 2023, followed by multi-front wars that began after Israel was attacked on October 7, was accompanied by a huge leap in the number of native-born Israelis who left the country. The continued judicial coup attempt and war in 2024 contributed to a further increase in emigration, with the number of native-born emigrants exceeding returnees by 160%.

When more Israelis leave and fewer return, especially amid war and a growing domestic threat to the nation’s liberal democratic underpinnings, Israel risks losing precisely the people needed to rebuild and sustain it.

Emigration from Israel is concentrated primarily among the people Israel can least afford to lose. Net emigration (emigrants minus returnees) among engineers, STEM graduates, university-educated Israelis, and physicians has risen sharply in recent years. The implication is a compounding danger: Israel loses skilled workers, weakens the tax base, and reduces the human capital needed for high tech, healthcare, academia, and defense.

The brain drain is becoming both an economic and a strategic threat for Israel.

Israel’s future cannot be secured by isolated policy fixes. Moving Israel to a sustainable long-run trajectory requires a comprehensive pivot in national policies.

The proposed framework begins with a single education system built around an upgraded, uniform and compulsory core curriculum, alongside a shift from sectoral to national budget priorities. These measures need to be safeguarded through electoral reform and a constitution.