In recent weeks we have published a string of downsizing stories here: Axonius, Tastewise and others, and most explained the decision with AI. But when managers of international development centers in Israel talk to the Finance Ministry, they do not talk about AI. They talk about the shekel.
The math is simple. Tech companies earn in dollars and pay employees in Israel in shekels. When the shekel strengthens, the same shekel salary costs the company more dollars. According to an Israel Growth Forum study, Israeli tech workers have become the most expensive in the world because of the shekel's rise, and about 2.4 times as expensive as their peers in Poland, Lithuania, Romania and Ukraine. According to a claim published in ynet, Israeli engineers are about 20% more expensive than American engineers purely because of the exchange rate, and one investor said dollar wage costs rose more than 20% within months.
In response, the Israel Advanced Technology Industries association (IATI) convened a forum of international companies' development centers with the Finance Ministry. According to reports, the 'red line' they presented is a situation in which an Israeli employee costs more than a Silicon Valley peer, and they asked for government relief. The association's CEO, Karin Mayer Rubinstein, noted that 2025 was the first year in more than a decade in which the number of R&D employees in Israeli tech declined.
Why does this matter more than AI? Because AI changes how much work is needed, but the shekel changes where it is done. A company that finds it can do the same work with fewer engineers thanks to AI still has to decide where the remaining engineers will sit. When Israel is the most expensive place, the decision almost makes itself. And 'it's because of AI' sounds better in a letter to employees than 'you are too expensive.'
What can be done? The government does not control the exchange rate, and the Bank of Israel will not run monetary policy for tech. But there are tools: tax benefits for employing developers, lower employer costs and incentives for companies that keep development here. Without such steps, Israeli tech will not collapse, but it will keep shrinking quietly, job by job, in favor of Lisbon, Warsaw and Bangalore. And whoever keeps blaming AI will miss the cause.
