Israel's central bank warned Tuesday of the "negative impact" on economic growth caused by a rising number in the population of Arabs and ultra-Orthodox Jews, who are under-represented in the workplace.
Karnit Flug, governor of the Bank of Israel, said low employment rates among Arab and Orthodox Jewish communities, who make up 17.5 percent and 10 percent respectively, of the population, was hampering the economy.
Israeli Arabs complain of discrimination in the workplace and a lack of vocational opportunities, often limiting them to unskilled jobs.
Orthodox Jewish employment rates are lower than the general population, with many faithful eschewing work in favour of religious study.
"In 50 years' time, the percentage of the ultra Orthodox population will climb from 10 percent to 27 percent," Flug told a conference of the Israeli Economic Association.
Ultra-Orthodox families, who often have many children per household, form along with Arab Israelis the vast majority of Israelis living below the poverty line.
They rely on state handouts, which were reduced under the previous government of Prime Minister Benjamin Netanyahu.
Klug also highlighted the economic impact of Israel's ageing population.
Over the next five decades the percentage of over-65s will climb to 17 percent of Israel's population.
"All these factors are going to cause a slowing in the rate of growth among the active population," the governor said.