Israeli Employers Struggle to Raise Wages Despite Historic Job Vacancies

Israel's labor market is experiencing an unprecedented tightness, with job vacancies reaching 152,000 by the end of 2025, marking a 10% increase in six months and described by the Ministry of Labor as a historically high figure. However, despite this acute demand for workers, the real average wage growth for 2025 was only 0.3%, indicating a near freeze in actual earnings after adjusting for inflation.

The Ministry of Labor attributes this wage stagnation to several factors: a reduction in public sector wages following agreements between the government and labor unions, restrained wage growth in the high-tech sector, and a growing reliance on foreign workers in low-wage industries. In the high-tech sector, real wage growth was a modest 0.8%, a significant slowdown compared to previous years. This slowdown is linked to ongoing economic and security uncertainties, which have dampened employers' willingness to offer substantial raises, as well as concerns about the impact of artificial intelligence on the sector's workforce bargaining power.

The report also highlights a shift in the high-tech labor market, noting that for the first time in a decade, there are more software developers seeking jobs than available positions. This trend is reflected in academia, where enrollment in computer science bachelor's programs has declined, even as graduate studies continue to grow. Meanwhile, the increase in foreign workers employed in sectors like construction, commerce, hospitality, and transportation has reduced employers' incentives to raise wages to attract Israeli workers, effectively filling labor shortages without wage hikes.

Additional pressures on the labor market include ongoing reserve military call-ups, which in 2023 accounted for about 3.1% of the workforce being absent at any time, decreasing to around 0.5% by the end of 2025 but still above pre-October 2023 levels. This sustained security situation contributes to the continued tightness in the labor market, independent of wage considerations.

Overall, the Ministry of Labor's report paints a complex picture of a labor market with high demand for workers but limited wage growth, influenced by sector-specific dynamics, foreign labor supply, and broader economic and security uncertainties.