Israel labor & demography: three prints, one message

ISRAEL - In Brief 18 Sep 2025 by Sani Ziv

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We got three data points this week on the labor market and demography, and they all point the same way: the labor market remains tight. Demand for workers is increasing, while labor supply is constrained by reservist service and net emigration. That combination keeps wage and price pressures alive and lowers the likelihood of a near-term rate cut. Start with unemployment (released earlier this week). Israel’s official unemployment rate fell to 2.9% in August from 3.1% in July (SA). The broad rate, which also counts those temporarily absent due to the war, eased to 4.2% from 4.4%. Reservists remain high at about 29k (down slightly from July, but still well above the pre-Iran-war 20–21k). The participation rate slipped to 62.3% (from 62.7%) and the employment rate to 60.4% (from 60.8%). The drop in participation adds to supply-side constraints. In short, unemployment is historically low even as employment shows early softening. Second, job vacancies. August vacancies rose to 146,140, with the vacancy rate up to 4.54% (from 4.48%)—one of the highest readings in three years; the last higher print was Oct-2022 (4.68%). Part of the pressure came from a 15% jump in openings in hospitality and food services ahead of the holidays. For the BoI, the signal is straightforward: labor-demand pressure hasn’t faded. And the last one—and the most problematic—is demography. Over the past Jewish year, Israel’s population grew just 1.0% y/y, well below the 1.8–2.0% decade average. Roughly 79k Israelis left versus only 25k new immigrants; natural increase stayed strong (179k births vs 50k deaths). A negative migration balance slows labor-force growth, tightening the market and adding to wa...