Israel's Labor Ministry Warns Foreign Worker Influx May Harm Local Wages and Productivity
The Israeli Ministry of Labor's 2025 labor market report highlights concerns that the rapid increase in foreign workers could reduce employment opportunities for local workers, especially those with lower education, and negatively impact wages and productivity. The report notes that despite high demand for low-wage labor, real average wages rose by only 0.3% in 2025, partly due to the growing reliance on foreign labor.
Before the October 7 war, Israel viewed foreign labor as a necessary but problematic measure, fearing it threatened the Jewish character of the country and suppressed technological advancement and productivity gains. The government had aimed to gradually reduce foreign worker quotas and increase employment costs. However, the war and the resulting ban on about 100,000 Palestinian workers entering Israel caused severe labor shortages in construction and agriculture. Additionally, workforce participation declined due to reserve soldiers and their spouses being absent, alongside increased emigration.
In response, the government doubled the foreign worker quota to 3.4% of the population, or 335,900 workers, allowing their employment in sectors previously managed without them, such as commerce and services. This more than doubles the 136,000 foreign workers recorded at the end of 2023. The number of foreign workers rose from approximately 150,000 before the war to 240,000 by May 2025, with plans to increase the quota further to 400,000. Current quotas allocate workers across sectors including construction (113,500), agriculture (57,000), commerce and services (31,000), and others.
The Ministry of Labor warns that the influx of foreign workers may discourage employers from adopting advanced technologies, worsening Israel's lagging productivity in non-export trade and service sectors. The report also highlights a sharp 85% increase in job vacancies in auto repair shops following the ban on Palestinian workers, with no rise in Israeli employment in these roles, raising fears that locals may abandon these jobs entirely.
Despite a tight labor market and low unemployment, the modest wage growth is attributed to the increased supply of cheap foreign labor, especially in low-wage sectors such as construction, commerce, hospitality, and transportation. Public sector wages fell by 1.6% in real terms in 2025, influenced by budget stabilization measures, while the high-tech sector saw a moderate 0.8% real wage increase amid ongoing economic and security uncertainties. Employment in high-tech grew slightly by 2.3% in 2025, but at a much slower pace than in previous years.
