Executives across Israel’s tech industry are increasingly voicing concern that the strong shekel could become one of the sector’s most damaging challenges in years. The growth engine of the Israeli economy, responsible for 25% of tax revenues and 20% of GDP, has endured three unprecedented years that began with uncertainty surrounding the judicial overhaul, continued with a prolonged and difficult war involving hundreds of reserve-duty days, missile attacks and periods of disrupted air travel, and now, as if there were no more challenges left, the strong shekel has landed another blow.
The strengthening Israeli currency, which last week even fell below 2.9 shekels to the dollar, is ostensibly positive news that should help lower the cost of living. At the same time, however, it is creating a growing operational challenge for high-tech companies that raise capital in dollars, as it sharply increases the cost of employing Israeli workers and creates budget shortfalls.
Within just a few months, wages in Israel have jumped by 15%-20% in dollar terms. The high-tech industry is also affected by its role as an exporter, though less than traditional exporters, since its products carry unique added value and are sold primarily on the basis of innovation and return on investment rather than price alone. The bigger story is that Israeli engineers have effectively become among the most expensive in the world, in some cases even more costly than engineers in Silicon Valley, not to mention workers in Europe or the Far East.
About two weeks ago, serial entrepreneur Liad Agmon, who is currently building an AI emotional therapy startup called Sunsay, said in an interview with Calcalist: “At the current shekel exchange rate, if I could, I would recruit all the employees for my startup abroad.” His remarks sparked a heated debate on X, centering on two questions with no clear answer. The first is whether Israeli talent is unique enough to justify such a premium compared to workers in other countries, including the United States. The second is whether the high-tech sector should abandon its long-standing reluctance to seek government intervention and openly call on the Governor of the Bank of Israel to sharply lower interest rates.
Regardless of where one stands in the debate, the shared concern is the gradual contraction of Israeli high-tech due to the outflow of jobs, as the dollar remains below three shekels or potentially falls toward 2.5 shekels, a scenario that no longer seems far-fetched.
During the same week that Meta launched another round of major layoffs, everyone in tech has been talking about AI-driven cuts, not just talking, but shouting. Layoffs justified by the artificial intelligence revolution have become the defining trend of 2026. But in Israel, another type of cut is quietly taking place behind closed doors: shekel-dollar cuts.
Conversations with executives across the Israeli tech industry reveal that companies no longer deny the impact of AI on hiring and budget plans for the second half of the year. At the same time, many acknowledge the emergence of what some privately call “AI washing”: layoffs or hiring freezes officially attributed to AI-driven efficiency gains, while the real driver is the soaring cost of Israeli employees.
For example, software giant Intuit recently announced workforce reductions of 17%, citing artificial intelligence. The cuts also affect its Israeli development center, which employs hundreds of workers. However, according to employees at the Israeli site, the reductions there are deeper because of the rising cost of Israeli labor. One entire development group employing dozens of workers was reportedly shut down and relocated to India.
“In recent months, we have seen companies stop recruiting in Israel, reduce activity and transfer roles to lower-cost countries after the wage cost of Israeli workers in dollar terms jumped by more than 20%,” says Noam Canetti, Managing Partner at EY Israel, who closely follows both local and multinational technology companies operating in Israel.
“Within multinational companies, a quiet process is also taking place among middle managers who are under pressure to meet budget targets and are shifting tasks and recruitment plans to cheaper development centers,” he says. “The exchange-rate issue is compounded by other challenges that have had a similar effect. The ongoing war forced companies to build alternatives outside Israel. Meanwhile, the AI revolution, which has created significant, and in some cases existential, business uncertainty, is pushing companies to reassess business models, reduce headcount and rely more heavily on AI tools.”
Canetti adds that “the exchange-rate challenge is accelerating decisions and processes that might have unfolded differently under other circumstances. It is creating a new reality and operating model that will not be easily reversed. The opportunities and positions that have already left Israel are unlikely to return.”
Indeed, in recent weeks, what initially appeared to be isolated pieces of information have formed a broader pattern: recruitment in Israel is slowing dramatically. The trend affects startups, which are particularly sensitive to labor costs, as well as larger public tech companies. Executives at Wall Street-listed Israeli companies including Riskified, Pagaya and Oddity say hiring in Israel has largely been paused for the time being.
Other companies privately admit that many of the open positions listed on their websites are effectively “ghost jobs,” intended to project business as usual even though there is currently no intention to expand hiring in Israel. Most are waiting to see where the shekel heads next.
Even monday.com’s recent decision to withdraw from plans to lease an additional 10 floors in Tel Aviv, officially explained as a result of slower hiring due to AI adoption, is viewed skeptically within the industry. Company insiders say the sharp increase in Israeli labor costs also played a major role. During its recent quarterly earnings report, monday acknowledged that the strong shekel had weighed on profitability, noting that 55% of its workforce is based in Israel.
International development centers are also feeling the pressure, particularly in software. Companies such as Nvidia, which require highly specialized hardware engineers and possess enormous financial resources, may be able to absorb a 10% increase in labor costs. Smaller companies, however, face a very different reality.
“These decisions are not made by the CEOs of Amazon or Microsoft,” says one industry executive. “But when a manager sitting in Boston or New York has to decide where to build the next product feature within a fixed budget, it becomes increasingly difficult to justify doing it in Israel. After the reserves, the missiles and the flight disruptions, there is now also the issue of cost.”
“Israeli talent is exceptional, but today you can hire two engineers in Poland or Portugal for the price of one Israeli employee, and that is increasingly becoming a deciding factor.”
An experienced programmer in Portugal earns roughly $100,000 annually, while a similarly skilled employee in Israel now costs around $170,000 a year, or approximately 40,000 shekels per month.
For multinational companies operating development centers in Israel, a persistently strong shekel could become the final economically justifiable, and non-political, reason to scale back operations in the country.
The greatest concern, however, centers on startups, which are far more sensitive to labor costs. Startup funding is raised almost entirely in dollars through venture capital rounds, while the first wave of employees is usually recruited from the founders’ Israeli networks.
Calcalist has learned that some venture capital funds are now advising portfolio companies preparing for fundraising rounds to cut headcount by at least 10% in order to present leaner cost structures to investors.
“In preparation for raising capital, startups are being advised to show lower dependence on Israel and lower shekel-based employment costs,” several founders said.
One young startup recently decided to abandon employer-branding efforts, once considered essential in Israel’s highly competitive recruitment market. “At this stage, we prefer to focus our resources on recruiting workers abroad,” the company told service providers competing for the contract.
The sharp rise in labor costs is also reshaping startup runway calculations – the period, usually 18-24 months, that a company expects its latest funding round to cover.
“Entrepreneurs are coming to us and saying: ‘In order to achieve the milestones we promised when we raised money a year ago, when the dollar was at 3.7 shekels, we now need another 22%-25% in funding, otherwise the money simply won’t last,’” one foreign venture capital investor told Calcalist.
“The shekel issue is now the central topic in startup boardrooms because suddenly companies have less money,” says Haim Sadger, a veteran Israeli tech investor, former Sequoia representative in Israel and founding partner at S Capital.
“The math is simple: rising labor costs shorten a company’s lifespan and delay the milestones required for the startup to advance,” he says. “If the dollar continues to weaken, a serious crisis could emerge not only for startups but also for multinational activity in Israel.”
Sadger questions whether Israeli programmers still justify their rapidly rising costs. “International companies originally came to Israel 30 years ago because development here was relatively cheap,” he says. “Today, Israeli employees must justify their premium through exceptional creativity and originality. At the pure programming level, Indian engineers are much cheaper and not necessarily less capable.”
“If the shekel remains at its current level, or strengthens further, there will ultimately be fewer companies and fewer employees here.”
Sadger is particularly worried about startups because they remain largely unprofitable and labor costs represent their primary expense.
“With large profitable companies, the impact is smaller. But the real issue is young startups, because they determine the future of Israeli high-tech,” he says. “Israeli tech is a pyramid. Companies like Wiz sit at the very top, but the broad base, startups, determines the future of the industry, and that is where the greatest damage is occurring.”
He adds: “Everything is happening simultaneously during an already difficult period. There is war, damaging international images, and now also the shekel-dollar exchange rate. The picture that emerges is deeply troubling.”
Data published at the end of April by the Aaron Institute showed that for the first time in Israeli history, the number of R&D employees in high-tech declined in 2025. Although the drop was relatively small – 1.1% – it occurred even before the shekel’s latest appreciation.
Israel still employs roughly 570,000 workers in high-tech, one of the highest concentrations globally, but the combined pressures of AI disruption, war and talent migration are beginning to raise alarms.
Historically, Israeli tech operated under the assumption that core research and development would always remain in Israel. Over the past two years, however, that assumption has started to crack. Repeated reserve duty deployments, travel disruptions and prolonged security instability have already pushed companies to diversify operations abroad.
Recently, even startups, not just large corporations, have increasingly begun recruiting developers outside Israel. The most worrying trend is the rise of “Israeli” startups that are effectively based abroad: founded by Israelis, staffed largely by Israelis, but incorporated and operated outside the country.
One recent example is cyber startup Artemis, whose founders and many employees are Israeli, but which operates from the United States without a development center in Israel.
“The ongoing erosion of the dollar is having a dramatic effect on Israeli high-tech,” warns Canetti of EY Israel. “Without intervention, it will become very difficult for the ecosystem to continue operating in its current format.”
“The damage extends far beyond the technology sector itself. High-tech is the main growth engine of the Israeli economy. It drives the real estate market, supports pension funds through the capital markets, and sustains a broad network of suppliers and service providers. Continued damage to high-tech means damage to the entire Israeli economy.”
For years, the Israeli tech industry insisted that its success stemmed precisely from minimal government intervention. Now, however, many executives are quietly looking toward the Bank of Israel and hoping for interest-rate cuts that could weaken the shekel.
Whether such a move would have a lasting effect is unclear. After all, few imagined that following two wars with Iran, hundreds of ballistic missile attacks and a prolonged regional conflict, the Israeli currency would emerge as one of the world’s strongest.
For now, the industry appears once again forced to adapt on its own, learning to operate amid yet another profound and destabilizing challenge.
