Israel has a developed free-market economy; the country’s major economic sectors are high-tech and industrial manufacturing. The country’s commodities and services export have reached $166B annually. 

Commodities comprise 48% of the total export and its main sectors are: electrical and optical devices, chemical products, and cut diamonds. Services comprise 52% of the total export, which main sectors are software, R&D, and other business services.

Israel’s Compound Annual Growth Rate (CAGR) over the last 10 years was 3.8%.

Israel’s average GDP growth over the last 4 years was 4.3%.

Israeli high-tech sector continued to prosper and to account for the economy’s primary growth engine. 

With over 9,000 active startups, Israel is a hotspot for pioneering technologies attracting world-leading multinational companies such as Nvidia, Microsoft, Motorola, Google, Apple (three R&D centers), Facebook, Intel, Siemens, and many more.

High-tech is one of the most in-demand sectors of the Israeli economy; the number of employees in the Israeli high-tech industry continued to grow and reached over 400 thousand. 

Following the hike in interest rates worldwide, the total volume of investments in the Israeli high-tech sector in 2022 decreased by almost 50% – from an unprecedented USD 27 billion in 2021 to about USD 15.5 billion in the year 2022.

Following the hike in interest rates worldwide, the total funds raised in the Israeli high-tech sector in 2023 decreased by more than a half to about USD 7.3 billion in the year 2023.

The early foundations of Israel’s economy were formed on a socialistic basis: for the first decades of its existence, the Government of Israel was dominated by parties with social or socialist overtones. Israeli society has adopted these foundations, including a well-developed system of labor laws aimed at protecting the rights of workers, both during their employment and after retirement. The Israeli employee is entitled to at least 12 days of annual vacation, and this number increases with seniority at the workplace. 

The employee is also entitled to payment during sick leave. Israeli law sets out a 42-hour workweek, for those with a five-day workweek with the length of a workday set out as 8.4 hours. Those with a six-day workweek have a work day of 8 hours, with a half-day of work on Friday. Employers are required by law to allocate a fixed portion of the employee salary to a pension fund and national insurance which may be up to 20% of gross pay. 

Employees are entitled to advance notice prior to termination, with the period of notice depending upon the duration and type of employment. Every Israeli is entitled to comprehensive healthcare within the healthcare organizations. This is provided in exchange for health insurance payments that are partly deducted from their salary, while most of the payments are made by their employer.

A number of labor organizations, headed by the New General Labor Federation, unionize workers in many sectors, primarily those in the government sector. Many employees in Israel are entitled to special safeguards in the form of ‘collective agreements’, providing them with a set of social and other benefits.

Israel has a highly educated and innovative workforce. High-school education is routine, and almost every Israeli adult is capable of conducting a conversation in English and possibly in another language besides Hebrew. A large percentage of Israelis hold an academic degree, provided by dozens of academic institutions. The rate of Israelis holding undergraduate and graduate academic degrees is one of the world’s highest. In certain fields, such as medicine, the academic institutions in Israel are unable to answer the vast demand. As a result, many young people acquire education outside of Israel.

Israel’s population growth rate, which was 1.9% in 2023, is one of the highest in OECD countries. The total population is set to reach 10 million by the end of 2024, according to Israel’s Central Bureau of Statistics (CBS).

The fertility rate in Israel is the highest in the OECD with 2.89 children per woman, compared to an OECD average of 1.8.

State-funded compulsory education is practiced in Israel by law, from the age of 3 to 18. At the age of 6, children start primary school, followed by three years in middle school, and three years in high school in various study tracks to which children are assigned according to their talents. Some vocational high schools continue their training for an additional year, at the end of which the graduate is awarded a ‘practical engineer’ degree. Following completion of 12 years of education, students take final examinations. Those who pass them all successfully will be granted a ‘matriculation certificate.’ The national rate of eligibility for matriculation certificates is 76%.

Upon graduation, most Israelis begin their mandatory military service, which lasts 32 months for men and 24 months for women. Soldiers who are either trained as officers or go through highly specialized training, such as aircrew and ship crew, will serve for longer periods of time, during which the officer gains academic training and usually completes their long service with an undergraduate or a graduate degree.

The proportion of Israelis who gain academic education is one of the highest in the world. Israel has ten universities and dozens of colleges that are qualified to award academic degrees under state supervision. In recent years, researchers and scientists produced by the Technion Institute of Technology in Haifa, the Hebrew University in Jerusalem, and the Weizmann Institute of Science in Rehovot have made some major breakthroughs in economics, physics, and chemistry. Some of them have received Nobel prizes for their contribution to global society.

These academic institutes produce tens of thousands of graduates in the social sciences and technology fields each year. They also train nearly 3000 new lawyers and roughly 1,500 accountants per year, an unprecedented rate relative to the size of the population compared to other developed countries.

Hebrew is spoken by all sectors of the population, including the Arab population. Arabic and Russian are common mother tongues in the country. Israeli students acquire basic English skills and usually learn an additional, third language. Besides Hebrew, an enormous range of languages is spoken on the Israeli street, as a reflection of the country’s diverse population.

The Israeli Companies Ordinance (ICO) defines a company as a corporation formed and registered in Israel, in accordance with Israeli law. A company must be registered at the Registrar of Companies which is a relatively short and simple process. According to figures from the World Bank, the total cost of setting up a corporation in Israel may reach US$ 2,000 (depending on the complexity of the company’s structure) and will take about two weeks, including registration of the corporation with the tax authorities in Israel.

Israel’s labor laws as well as the quality of education and training are reflected in the cost of labor in Israel. However, the cost of employment of a skilled worker in Israel is still lower than that of his counterparts in North America or Europe.

In Israel, a minimum wage of about $1,500 per month is applied. Correspondingly, the minimum cost of employment per hour of work is approximately $8, considering the mandatory payments applying to wages in Israel. The cost of employment of a skilled engineer graduated from computer science and electronics faculties, may reach $70 per hour. The compensation of senior management workers is essentially the same as the compensation paid to equivalent executives in Europe and North America, and some of the senior executives in Israel earn millions of New Israeli Shekels per year.