Israeli Employers Struggle to Raise Wages Despite Historic Job Vacancies

At the end of 2025, Israel faced a record high of 152,000 job vacancies, marking a 10% increase over six months, according to the Ministry of Labor. Despite this acute demand for workers, the real average wage rose by only 0.3% throughout 2025, indicating a near freeze in wage growth when adjusted for inflation.

The Ministry of Labor attributes this wage stagnation to several factors: a reduction in public sector wages following government-labor agreements, restrained salary increases in the high-tech sector, and a growing reliance on foreign workers in low-wage industries. In the high-tech sector, the real wage increase was a modest 0.8%, far below historical norms, influenced by ongoing economic and security uncertainties and concerns about artificial intelligence's impact on employment.

For the first time in a decade, there are more software developers seeking jobs than available positions, signaling a slowdown in the sector. This is reflected in declining undergraduate computer science enrollments, even as graduate program registrations continue to rise. Meanwhile, the influx of foreign workers in sectors like construction, commerce, hospitality, and transportation has reduced employers' incentives to raise wages to attract Israeli workers.

The report also highlights labor shortages in service industries such as automotive repair and retail stocking, where Israeli workers have shifted to higher-paying construction jobs. Additionally, ongoing reserve military call-ups, which peaked at 3.1% of the workforce in 2023 and remain elevated at around 0.5%, continue to tighten the labor market. The Ministry acknowledges that without updated wage data by occupation, some conclusions remain tentative, but the overall picture points to a tight labor market with suppressed wage growth amid complex economic and security challenges.