The layoffs sweeping Israeli tech may only be the beginning
Behind the cuts lies a fundamental shift in how the industry hires, grows and competes.
The shockwaves from the layoff crisis in Israeli high-tech, which appears to be far from reaching its peak, could hit the fragile Israeli economy with considerable force. For more than two decades, the local high-tech sector has served as the engine of the Israeli economy, and whenever it experiences a shock, the effects ripple across the broader market: from employment and real estate to tax revenues and private consumption.
The current wave of layoffs is no longer a temporary market correction. It is being driven by two powerful forces: the AI revolution and the strengthening of the shekel. Artificial intelligence is accelerating a transition toward efficiency and automation-driven layoffs, while the “shekel-dollar trap,” - the erosion in the exchange rate - is turning Israeli engineers into some of the most expensive employees in the world in dollar terms.
Israel’s growth engine is changing shape, shifting from a broad-based industry that created jobs for a wide range of workers into a more selective and exclusive deep-tech sector. This is not the first time the industry has stood at the edge of a crisis. To understand where the economy may now be heading, and how the current employment earthquake could affect the wider market, it is worth looking back at the previous crises of the past decade.
An examination of the two major crisis cycles the industry has experienced since 2016, from the brief Covid shock in 2020 to the monetary and geopolitical crisis of 2022-2023, offers clues about what may lie ahead in the coming months.
1. What makes the current wave of layoffs in Israeli high-tech different from previous crises?
The current wave of layoffs is no longer a temporary correction but a deep structural reorganization. Unlike previous downturns, the Israeli high-tech industry is once again growing financially while simultaneously losing its ability to function as a broad employment engine for the wider public.
For the first time in more than a decade, the industry recorded a real contraction of about 2% in the number of employees. The recovery has also become highly asymmetric and selective: core AI, cyber and data experts remain in enormous demand and command exceptionally high salaries, while middle-management, support and peripheral roles are facing streamlining, stagnation and layoffs.
2. What are the two main forces driving the current employment crisis?
The crisis is being driven by two central forces:
The “shekel-dollar trap”: The strengthening of the shekel against the dollar has increased the dollar-denominated cost of Israeli engineers by roughly 15%-20%. This has made Israeli tech workers among the most expensive in the world, in some cases even more expensive than their counterparts in Silicon Valley. As a result, international companies and startups have quietly shifted budgets and hiring to lower-cost locations such as India and Eastern Europe.
AI-driven restructuring: The rapid adoption of artificial intelligence tools is enabling companies to significantly improve efficiency while reducing headcount across areas such as middle management, support, operations and quality assurance.
3. How has the structure of the Israeli high-tech workforce changed over the past decade?
Between 2016 and 2026, the industry underwent a profound structural transformation, from horizontal growth that created jobs across a broad range of functions to a more selective deep-tech model.
This shift is reflected in the growing share of research-and-development positions, which rose from 37.4% of industry jobs in 2012 to 50.6% in 2024, largely at the expense of support, administrative and management roles.
4. What happened during the Covid crisis in 2020, and how did it shape the years that followed?
When the pandemic erupted in early 2020, fears of economic collapse led companies to freeze hiring, reduce working hours and furlough temporary and peripheral employees. However, the crisis proved short-lived and ultimately accelerated digitization and the transition to cloud computing.
In 2021, massive liquidity injections and near-zero interest rates fueled unprecedented euphoria in the technology sector. Valuations soared, competition for talent intensified, and companies embraced a “growth at any cost” strategy.
5. What characterized the 2022-2023 crisis cycle?
The environment shifted dramatically in 2022 as global inflation and rising interest rates undermined the “growth at any cost” model and triggered a new wave of layoffs. More than 6,000 employees lost their jobs, while demand for software-development positions weakened sharply.
In 2023, the situation deteriorated further amid uncertainty surrounding the judicial overhaul and the outbreak of the Swords of Iron war.
The local venture-capital industry was hit particularly hard. Fundraising fell by over 50% in 2023 to its lowest level since 2015. Venture-capital firms shifted into defensive mode, allocating roughly 76% of their available capital to follow-on investments aimed at preventing portfolio companies from collapsing or raising money at sharply reduced valuations. Recovery from that cycle took between 18 and 24 months.
6. What paradoxical trends emerged in 2025?
The year 2025 presented a paradox: a financial boom alongside a growing employment crisis.
It was a record year for exits, potentially reaching $88 billion, while capital raising rebounded to approximately $11 billion. Venture-capital fundraising, after collapsing in early 2025, recovered sharply in the second half of the year and ultimately reached $2.45 billion. Funds also accumulated roughly $8.7 billion in available “dry powder.”
At the same time, major companies implemented sweeping workforce reductions. Wix laid off around 1,000 employees, while ZoomInfo shut down its Ra’anana development center and dismissed roughly 300 workers, among many other firms cutting costs.
7. What challenges are early-stage startups facing?
Although private funding rose in 2025, the market became increasingly concentrated and selective. Nearly half of all investments flowed into AI companies, making it significantly harder for startups in sectors such as fintech and foodtech to attract capital.
At the same time, rising salary costs shortened startup runways by roughly three months. Young companies have struggled to compete with large technology firms for AI and cyber talent, forcing many startups to rely more heavily on stock options and leaner operating structures.
8. How is AI simultaneously providing an “operational lifeline” for startups?
The AI revolution is also offering startups significant efficiency gains. Many young companies are now using autonomous software agents and “vibe coding” tools capable of writing, testing, and fixing code with minimal human intervention. These technologies allow startups to build initial products (MVPs) faster and with significantly leaner teams, while reducing the need for large support, headquarters, and quality assurance (QA) functions. Companies that successfully integrate these tools are receiving stronger backing from investors and are often able to raise capital at higher valuations.
9. What is the “domino effect” of the high-tech crisis on Israel’s economy and state finances?
High-tech employees earn approximately 2.7 times the average salary in Israel and are responsible for around 36% of income tax revenues generated from wages, as well as up to 30% of the state’s total tax income. As a result, any slowdown in the sector quickly spills over into the broader economy.
- Taxes and deficit: In 2023, the slowdown in high-tech contributed to a 5.5% decline in overall tax collection and a widening fiscal deficit. A 56% collapse in exits that year also sharply reduced revenues from capital gains and stock-option taxation.
- Growth and GDP: High-tech GDP stagnated at approximately NIS 317 billion for two consecutive years, weighing on the broader economy. National economic growth slowed to just 2.9% in 2025, below the long-term trend.
10. How is the crisis affecting real estate and private consumption in Israel?
Residential real estate: High-tech workers account for roughly one-third of apartment buyers in central Israel, while proceeds from exits and stock options often serve as a financial cushion for major purchases. When layoffs increase or compensation declines, housing demand in key areas weakens almost immediately.
- Commercial real estate: The closure of development centers and broad efficiency measures have led major technology companies such as Meta and Amazon to reduce office space by 15%-25%. While premium office towers in Tel Aviv have so far maintained fragile stability, peripheral and satellite cities such as Petah Tikva, Yokneam, and Haifa are already experiencing sharp declines in rents, with occupancy rates in some areas falling below 70%.
- Private consumption: Layoffs and the erosion of purchasing power are also reducing discretionary spending. Restaurants, cafés, tourism businesses, and other local services are seeing a noticeable drop in revenues, extending the slowdown from the high-tech sector into the wider economy.
