The Israeli tech industry is facing a critical challenge as the strong shekel poses a significant threat to jobs and economic stability. This issue is not just about the exchange rate; it's a complex interplay of global economic forces and domestic pressures. The tech sector, a cornerstone of Israel's economy, is under immense pressure, and the situation demands urgent attention and innovative solutions.
The math is indeed simple: a strong shekel drives up labor costs, making Israeli tech workers more expensive in the global market. With an average monthly salary of 30,000 shekels, each high-tech worker costs an exporting employer approximately 8,500 dollars a month at the current exchange rate. This figure is alarming, especially when considering the 400,000 employees in the high-tech sector, resulting in a staggering 21 billion shekels in added labor costs. This is equivalent to the cost of employing about 40,000 workers, a number that is already at risk of being moved abroad for cost savings.
The situation is further complicated by the Trump administration's efforts to weaken the U.S. dollar, the rally in U.S. equities, and a decline in Israel's risk premium. These factors have contributed to the dollar's double-digit weakening against the shekel and other major currencies since January 2025. The Bank of Israel acknowledges that this time, the situation is beyond their control, and the exchange rate is being driven by external forces.
The impact of this strong shekel is already being felt across the industry. A survey conducted by the High-Tech Association among dozens of companies revealed that most firms are bracing for a margin erosion of 15% or more, leading to layoffs and the relocation of operations abroad. This is not limited to startups; large multinational firms are also affected, highlighting the need for diverse solutions.
One proposed solution is the possibility of paying corporate tax in dollars, as negotiations between Nvidia, Google, and the Finance Ministry suggest. However, this is not a viable option for unprofitable startups with limited tax liabilities. The consensus is that any solutions must be implemented quickly and cannot rely on legislation, especially with elections looming.
Arik Kleinstein from Glilot Capital emphasizes the urgency, warning of immediate layoffs and job relocation if action is not taken promptly. He proposes reactivating the grant-loan mechanism used during the COVID-19 period and the 2023 war, allocating at least 1 billion shekels to support startups. This would cover a fixed share of monthly expenses and be repaid once significant sales are achieved.
The High-Tech Association has proposed a range of creative solutions, including municipal tax discounts for major exporters and easing the cost of tax credit points. These measures aim to reduce employer costs while maintaining net salaries for employees. The association expects further measures to emerge from talks with the Finance Ministry, focusing on lowering shekel-denominated payments to the state.
Alon Ben-Zur, chairman of the High-Tech Association, highlights the danger of knowledge leaving Israel, which will harm not only the tech sector but also broader industries. The strong shekel is seen as the final trigger, following three years of turbulence, including domestic uncertainty and the war, that has already led to the relocation of development jobs abroad for the first time in Israel's history. The Aaron Institute's data and the Israel Innovation Authority's annual report confirm a decline in R&D jobs and an increase in startups registering abroad.
The urgency is now palpable in Jerusalem, with the Budget Division fearing future revenue loss after witnessing exceptional tax revenues from exits by Wiz, Armis, and CyberArk. The strong shekel is not just a financial issue; it's a complex challenge that requires a multifaceted approach to safeguard Israel's tech industry and its vital role in the economy.
