“Liad Agmon only said out loud what the entire industry has been whispering,” senior figures in the Israeli tech sector admit when referring to the strengthening of the shekel, which is weighing on them. Israel’s growth engine, responsible for 25% of tax revenues and 20% of GDP, has gone through three unprecedented years that began with uncertainty around the judicial reform, continued through a prolonged and difficult war with hundreds of reserve duty days, missiles, flight restrictions and now, as if more challenges were needed, a strong shekel.
The strengthening Israeli currency, which last week even fell below 2.9 shekels per dollar, is ostensibly a positive development that should reduce the cost of living. But at the same time it creates an operational challenge for tech companies that raise funding in dollars, sharply increasing the cost of employing Israeli workers and creating a budget gap.
Within a few months, salaries in Israel have surged by 15%–20% in dollar terms. The tech industry is also affected as an exporter, though less than “traditional” exporters since it produces high value-added products sold to organizations that are less price-sensitive and focus mainly on speed of return on investment.
The bigger story is Israeli engineers, who over the past month have become among the most expensive in the world, sometimes even more than those in Silicon Valley, not to mention tech workers in Europe or the Far East. About two weeks ago, serial entrepreneur Agmon, who is now working on a new startup called Sunsay that is building an AI-based emotional therapy platform, told Calcalist: “At the current exchange rate of the shekel, if I could, I would hire all my employees for my startup abroad.” His remarks sparked heated debate on X, raising two unresolved questions. The first is whether Israeli talent is so unique that it justifies a premium compared to other countries, including the United States. The second is whether the tech sector should break its unwritten rule against calling for intervention from Jerusalem and instead urge the Bank of Israel governor to cut interest rates sharply and quickly.
Regardless of which side of the debate one takes, the shared concern is the same: contraction of Israel’s tech sector due to the outflow of jobs abroad, as the dollar continues to weaken below three shekels or potentially heads toward 2.5 shekels, a scenario that no longer seems far-fetched.
In the week of mass layoffs at Meta, which began on Wednesday, everyone is talking about AI-driven cuts – and not just talking, but shouting. The wave of layoffs under the AI revolution is described as the “right disease” to have in 2026. But in Israel, companies are increasingly discussing and quietly implementing what could be called “shekel-dollar cuts.” Industry representatives do not deny AI’s impact on budget planning for the second half of the year, but also acknowledge the existence of AI washing: explanations for hiring freezes or layoffs citing efficiency gains from AI adoption, while in reality decisions are driven by the sharp increase in the cost of Israeli employees.
For example, software giant Intuit recently announced broad layoffs of 17% of its workforce due to broader use of artificial intelligence, affecting its Israeli development center, which employs hundreds of workers. However, according to employees at the Israeli site, the cuts there are deeper due to the “thing that cannot be spoken of” – rising labor costs. As a result, an entire development group that employed dozens of workers was shut down and moved to India.
Hiring freezes
“In recent months we are seeing companies stopping hiring in Israel, reducing activity and transferring roles to lower-cost countries after Israeli salary costs in dollar terms jumped by more than 20%,” says Noam Canetti, managing partner at EY Israel, who closely advises many tech companies operating in Israel, both local and foreign. “Even in multinational companies, a quiet process is taking place at middle management level, where managers bound by budget targets shift tasks and hiring plans to cheaper development centers. It is important to understand that the exchange rate problem is adding to other factors with similar impact. For example, the prolonged war forced companies to create alternatives outside Israel. The AI revolution, which places many companies in significant and sometimes existential uncertainty, is also forcing them to reassess activities and business models, while reducing headcount and increasing use of AI tools.”
He adds: “The challenge posed by the exchange rate accelerates processes and decisions that in a different environment might not have been taken. This is creating a new reality and way of working that within a few months will be difficult to reverse. The opportunities and roles that have already left Israel will not return.”
Indeed, in recent weeks Calcalist has received scattered but consistent reports forming a clear picture: hiring in Israel is stopping. This affects all parts of Israeli tech – from startups, which are especially sensitive to labor costs, to large tech companies. Among Israeli public companies traded on Wall Street such as Riskified, Pagaya and Oddity, there are claims that hiring in Israel has been frozen for now. In many other companies, job postings on company websites are described as “ghost jobs,” meant to signal business as usual, while in practice there is no intention to hire in Israel at this stage. Everyone is waiting to see where the shekel goes.
Even Monday.com’s decision to withdraw from its plan to lease 10 additional floors in Tel Aviv, justified by reduced hiring due to AI adoption, is not fully convincing. People close to the company say much of it is due to the sharp rise in labor costs in Israel. The company already acknowledged in its Q1 earnings that profitability was affected by the strong shekel, given that 55% of its employees are based in Israel.
Even international development centers are not immune, especially when it comes to software engineers. Companies like Nvidia, which need specialized talent and have ample resources, may not be significantly affected by a 10% increase in Israeli labor costs. But for smaller firms the situation is different. “These are not decisions made at the level of the CEO of Amazon or Microsoft. But when a manager in Boston or New York is planning where to build the next feature on a fixed budget, it is becoming harder to choose Israel. After reserve duty, missiles and travel restrictions, now there is also cost. Israeli talent is exceptional and highly skilled, but today you can hire two Polish or Portuguese engineers for the cost of one Israeli, and that is already a decisive factor,” says a senior figure in the industry. Indeed, while a programmer with experience in Portugal earns about $100,000 a year, a similarly skilled worker in Israel earns about $170,000 (around 40,000 shekels per month).
In international companies, not necessarily the largest ones, that operate development centers in Israel, a prolonged strong shekel could be the final straw that provides a “non-political” economic justification for reducing activity in Israel.
But the biggest story and the greatest risk lies in startups, which are more sensitive to labor costs. All startup funding is dollar-based, coming from venture capital raises. At the same time, the first wave of employees is usually drawn from founders’ close circles – meaning Israeli, and relatively expensive, workers. Calcalist has received reports that venture capital funds have recommended portfolio companies raising new rounds to reduce headcount by at least 10% in order to present a leaner cost structure. “Ahead of fundraising, the recommendation is to show less dependence on Israel and lower shekel-based employment costs,” say startup executives.
A young startup has even decided to forgo employer branding services, which until recently were considered crucial for recruitment. “We prefer to focus resources on hiring abroad at this stage,” it told service providers competing for the role.
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Liad Agmon sparked a debate after saying he would recruit all his employees abroad
(Photo: Insight Partners)
The sharp rise in salaries is creating a new reality for startups operating on what the industry calls “runway” – typically 18 to 24 months of funding from the last round. “Founders come to me and say: ‘To reach the targets I promised when we raised money a year ago, when the dollar was at 3.7 shekels, we now need 22%–25% more capital, otherwise the money will not last,’” says a venture capital investor shocked by the impact of the exchange rate on labor costs.
“The central bank must stop the shekel slide”
“The shekel issue is now the central topic in every startup board meeting because suddenly there is less money. The math is simple: higher labor costs shorten company lifespans without additional funding and delay all processes needed for startups to move forward,” says Haim Sadger, a veteran Israeli tech figure and former Sequoia Capital representative in Israel, now co-founder of S Capital. “If the dollar keeps falling, we could see a major crisis here, not only in startups but also in foreign companies’ operations.”
Sadgar is also skeptical about whether Israeli engineers still justify their rising salaries. “Multinational companies came here 30 years ago because development was cheap, but Israeli programmers are viewed differently from Indian programmers. They must bring exceptional thinking and creativity. In pure coding terms, Indians are far cheaper today and not necessarily worse. So if the shekel stays at current levels or weaker in a year, there will be fewer companies and fewer jobs,” he says.
He is especially concerned about startups, most of which are not profitable and whose main expense is engineering staff, making them heavily dependent on venture capital. “For large profitable companies the impact is smaller, but we need to look at young startups because they are the future of Israeli tech. The ecosystem is a pyramid: at the top are companies like Wiz, but the broad base determines the industry’s future, and that is where the biggest impact is.”
“Everything is converging at a bad time – war, images that do not help the country, and now the shekel-dollar situation. Combined, the picture is even more troubling. Do I expect intervention from Jerusalem? Since October 7 I expect nothing from Jerusalem and in an election year no one will act. In a normal country, the Central Bank would stop the shekel’s slide. The answer is yes,” he concludes.
Data from the Aaron Institute published in late April shows that for the first time in the history of Israeli tech, 2025 saw a decline in R&D employment in Israel. It is a slight drop of 1.1%, but it occurred even before the dollar’s fall. Israel still leads in tech employment with 570,000 workers, but AI and brain drain in recent years are raising red flags.
Historically, the assumption was that development happens in Israel and forms the core of the local tech industry. But in recent years cracks have begun to appear, driven by the ongoing war, repeated delays due to reserve duty, difficulty meeting clients because of limited flights, and periods of escalation that slow work. Recently, even startups – not just large mature firms – have begun hiring development workers outside Israel.
A more worrying trend is the hiring of Israeli expatriates abroad, creating companies that are entirely Israeli in identity – founders and employees alike – but located overseas. A recent example is cybersecurity company Artemis, founded by Israelis with most employees also Israeli, but registered and based in the United States with no development center in Israel.
“The prolonged weakening of the dollar has a dramatic impact on Israeli tech. It is difficult to estimate where the new equilibrium will settle. Without external intervention, it will be very difficult for the local ecosystem to continue operating in its current form. The damage is not limited to tech companies themselves – this is the central growth engine of the economy, driving real estate, supporting capital markets through pension funds, and generating activity for suppliers and service providers. Continued damage to tech means damage to the entire Israeli economy,” warns Canetti from EY.
Historically, the tech industry has argued that its success stems from government non-intervention and has asked to maintain that stance. But now eyes are turning to the Bank of Israel as a last possible savior that could cut interest rates in its upcoming decision and slightly weaken the shekel. Yet under current market conditions, even a rate cut may not lead to a lasting change in direction. After all, who would have imagined that after two wars with Iran involving hundreds of ballistic missiles and another war in the north, the Israeli currency would become one of the strongest in the world. The industry now appears forced to search for solutions internally and learn to operate with yet another major risk factor, just as it has done repeatedly in recent years.