How businesses adopt AI: Insights from Israel’s first comprehensive survey

In recent years, the combination of increasingly accessible artificial intelligence (AI) and the rapid pace of technological development has led to numerous analyses of its potential to make significant changes to labour market dynamics, industrial organisation and macroeconomics. Nevertheless, a considerable gap remains in our knowledge regarding the actual impact of AI. This paper, which focuses on a unique survey conducted by Israel’s Central Bureau of Statistics, aims to examine this critical issue by focusing on the Israeli case as part of the global discussions around these issues. The paper addresses three key themes: the effect of AI adoption in businesses on the workforce composition, the influence of AI on disparities between economic sectors, and the barriers to broader and deeper implementation of AI technologies in the private sector. Regarding labour substitution, it appears that although businesses in Israel already make relatively widespread use of AI to perform tasks previously carried out by workers, the effect on overall employment levels remains relatively limited. It is yet to be seen whether a more significant substitution effect will occur in the longer term, or whether the size of the effect was overestimated in previous studies. When it comes to the differential diffusion rates between industries, Israel stands out in international comparison. Israel’s high-tech sector demonstrates much higher levels of AI implementation compared to other industries. Relatedly, unequal adoption rates between the geographical centre of the country and its periphery are also significant. The Israeli case thus offers further evidence that AI adoption in the labour market may deepen existing disparities, especially in countries where innovation-based industries attract high proportions of highly skilled employees. Finally, among the different implementation barriers in traditional industries, the lack of knowledge and understanding of AI emerges as a major impediment to adoption. This phenomenon may again point to the human capital imbalances in dual economies. The paper concludes by discussing potential policy takeaways. Such a policy might include promoting the integration of AI in traditional industries, offering more robust lifelong learning frameworks, as well as relevant education reforms. Considering the rapid technological developments in AI, it is also important to continue monitoring this issue regularly with agile yet consistent empirical instruments. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.