According to a report from the Shoresh Institution for Socioeconomic Research, Israel's productivity has fallen behind the G7 countries, posing serious concerns for its economic future. As of 2023, Israel’s total factor productivity was 15% below the G7 average, a significant decline from being 9% above it in 1975. The report emphasizes the need for the next government to prioritize education and budgetary concerns to safeguard the country's long-term economic viability.

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The report, authored by Shoresh President Prof. Dan Ben-David, identifies weak educational systems, rapid demographic changes, and the exodus of skilled workers as interrelated issues threatening the economy, healthcare, and defense capabilities. Ben-David stated, "The upcoming election will determine who governs Israel, but the deeper question is what kind of country the government will govern a generation from now."

Historically, Israel has experienced significant shifts in productivity. While in 1954 it was 27% below the G7 average, it surpassed that benchmark within about 20 years, only to fall behind again. A separate measure regarding output per hour worked presents a similar pattern; Israel outperformed all G7 nations in 1972 but trailed behind most by 2024. The report notes that Israel's output per hour worked was 34% lower than Germany’s and 30% lower than the United States'. Japan was the only exception.

Ben-David pointed out that this decline is attributed to a focus since the 1970s on sectoral interests over investment in essential infrastructure, education, and public services. He mentioned that an increase in defense spending alone does not account for these productivity issues, particularly as there have been years where civilian expenditure met or exceeded the OECD average.

While Israel has experienced notable success in the hi-tech sector, which generates 22% more economic value per hour than the average OECD economy, this success contrasts sharply with performance in other sectors, where productivity lags by 24%.

The report underscores a growing dependency on a small group of high earners, with the top fifth of earners contributing 93% of income tax revenue in 2024, compared to 83% in 2000. This concentration raises concerns about vulnerability should these high-skilled workers choose to emigrate.

Looking towards the future, the education of children is crucial in expanding the skilled workforce. The report highlights that Haredi children comprise 25% of first graders, while Arabic-speaking children represent 23%. However, many Haredi boys do not take the full core curriculum, limiting their participation in relevant assessments. Current educational statistics from Shoresh indicate that pupils in state-religious and secular Jewish schools lag behind their peers in 76% and 81% of OECD countries, respectively. In contrast, Arabic-speaking students performed lower than those in almost all OECD countries.

Concerns extend beyond education to the healthcare sector; between 2000 and 2023, the number of Israeli physicians practicing abroad rose from 0.7% to 1.9%. These trends raise alarms about potential burdens on the remaining workforce and increased emigration.

To counter these challenges, Ben-David proposes an "Israel 2.0" program, advocating for a revamped core curriculum, public funding only for compliant schools, and a reassessment of national spending priorities. He calls for governance reforms to strengthen checks and balances and warns that the opportunity for change is diminishing.