Will Wages Rise?

By Hannah Wallace November 30, 2005

Employers in the Sunshine State have always had the "Florida discount" on their side-the pay cut workers are willing to take in exchange for sun and sand. But a good climate and beautiful beaches won't buy a house, and neither will many salaries in the Sarasota-Bradenton area anymore.

Workers who don't already own a home are faced with long commutes or moving out of the area altogether. Employers, already squeezed by a tight local labor market, can't recruit new workers to the area and are losing existing employees.

Beaches, weather and Southwest Florida's growing cultural amenities are still enticements, "but you just can't tell people, 'Sell your house up North and buy twice the house down here,'" says University of Florida economist Dr. David Denslow.

Over the past 10 years, Florida's house prices have leapt ahead of those in other Southern states-Florida's labor market competition-with a 72-percent increase (adjusted for inflation). Compare that with a 35-percent rise in Georgia, 21 percent in North Carolina and 17 percent in Alabama. At the same time, adds Denslow, wages in Florida have consistently averaged 20 percent lower than the nation's average.

"Partly that's because the occupations are different here," he says. "But about 5 percentage points of that difference are because our cost of living has been about average and our amenities are high, so people are willing to take lower pay to work here because of the sunshine, coast, ocean, Gulf and average cost of living. That's no longer going to be true, because there's just no question that the cost of living in Florida exceeds that of the nation now."


There are countless tales in Sarasota and Manatee counties of losing workers to more affordable areas, and recruits bailing out on prospective jobs once they see the housing market.

Bijou Café last summer lost its sous chef, who headed back to North Carolina, where he stood a better chance of buying a home, says general manager Susan Phillips. He was working two jobs at competitive wages, and his wife was employed full time in healthcare; yet when their apartment was converted to condominiums, they could afford neither the condo nor anything else in the area. "Definitely a loss for us," says Phillips, who adds that most local food-service employees work two or more jobs now.

"People are moving to North Port and farther away in order to find a place," says Tony Souza, executive director of the Downtown Partnership of Sarasota. "Many of the apartments are turning into condominiums. It depletes the rental market, and there's a huge rental market here."

The pressure cuts across industries and income brackets. Web site developer GravityFree has lost programmers, and the law firm Abel Band has lost associates to markets with higher wages and lower housing costs. Employers from high-end hotels to manufacturing firms, broadcasting companies, builders, hospitals and schools all are struggling not just to hire new workers, but to hold on to existing employees.

Southwest Florida's labor market is tighter than the rest of the state or the nation. As of July, Sarasota County's unemployment rate was 3.2 percent, compared to the state's 3.8 percent and the nation's rate of 5 percent, both seasonally adjusted, according to the Florida Agency for Workforce Innovation.

In the Sarasota-Bradenton metropolitan statistical area, the median sales price in July for an existing single-family home (among realtor-assisted transactions) was $333,900, an increase of 32 percent from July 2004. Statewide, the median home price in July was $252,300, representing an increase of 33 percent from July 2004, according to the Florida Association of Realtors.

Meanwhile, wages in Sarasota-Bradenton are lagging behind both the state and nation. The U.S. Department of Labor cites the average annual salary here at $31,100 as of May 2004. That's up from $28,240 in 2001, but falls behind the 2004 figures for the state, $33,320, and the nation, $37,020.

In the first half of 2005, the average small business in Florida increased in number of employees by 13.5 percent, yet the average earnings dwindled by 3.8 percent, adjusted for inflation, according to SurePayroll, a national payroll firm that serves 15,000 small businesses and produces hiring and pay indices. According to its information, hiring has increased, but average salaries dropped from $34,315 in January to $32,320 in July.

OUT-PRICED BY OUTSIDERSSo, why aren't employers upping wages?

"In many cases they are raising salaries, but they just can't keep up with prices of houses," says Souza of the Downtown Partnership. "I think wages here were low for a long time, but so was housing, and housing has increased by leaps and bounds more than what employers could possibly come up with."

Bill Dobson, economic analyst for the Florida Agency for Workforce Innovation, cites a disconnect between the local economy and what's driving the house prices. Well-heeled retirees or investors arriving with outside income are creating the demand and driving prices to their own affordability level, far beyond that of local workers.

"In the Sarasota area, the household income is much higher than wage and salary income," says Dobson. "A lot of industries in that area are just low-paying industries, and a lot of housing costs get driven up by retirees moving there." Salaries are competitive within the market, but they don't keep pace with the money coming into the area.

Bob Tunis, economic development manager for the city of North Port, contrasts it with Silicon Valley in its heyday: "The housing costs there went up to the highest in the nation because of the very high salaries that were being issued to the people working in the high-tech companies," he says. In Sarasota, the cost increase "has been independent of the increase in salaries."

The predominance of small businesses also affects wages. "A big part of this area is small business, and small businesses can only pay so much," says O'Connor of the workforce board.

That's GravityFree's situation, says co-founder Ray Villares. "About a year ago, we lost two employees to bigger markets. If someone's going to make $40,000 driving an hour to work, why not move to Tampa where they can make $60,000 and drive 15 minutes and be able to buy a house?"

About half of its 13-person workforce commutes some 45 minutes to its Stickney Point Road office. "Accessibility is going to be a factor," adds Villares. "We're thinking about moving to the Lakewood Ranch area or toward the interstate."

In about 18 months, GravityFree lost a total of three employees, but didn't replace all three. Instead, it shifted emphasis from custom programming to Web design, its bread and butter. "If I raised salaries, then I'd have to raise my rates," says Villares. "Especially small businesses-if they've got three months' worth of expenses in the bank and a little debt, they're doing pretty good. We don't produce much profit above our budget. If we increased wages we'd be in the red."

And raising salaries is risky, he adds. "When you raise your rates, you're potentially putting yourself in a different price point, and if you're in a price point where you shouldn't be, you're not competitive."

Villares worries that the housing costs might spur an exodus of the young, creative workers he relies on, as baby boomers continue to out-spend them for available housing. And the loss of that 20s and early 30s demographic-which he sees leaving the area already-will accelerate a change in the cultural climate of the area, making it tougher to recruit young tech workers.

"If you ask people in their late 20s, early 30s, 'Do you see yourself in Sarasota in five years?' they say, 'No."


Local companies are struggling to find innovative ways to respond.

"We suggest they try to become the employer of choice: Look at the wage range for positions and consider paying at the upper end of those positions, offer the best benefits they can afford, and also look at flexible schedules that might attract a different kind of worker, like retirees," says Kathy Baylis, president of the Economic Development Corporation of Sarasota County.

Some healthcare employers are offering big sign-on bonuses for nurses, says Allyson O'Connor, project manager for the Suncoast Workforce Board's 21st Century Workforce Study. Others, such as Vengroff, Williams & Associates, are offering housing assistance to employees through rent-to-own plans.

Private-public efforts are working on relief through community land trusts and other initiatives. The workforce board is helping employers appeal to the influx of baby boomers looking for work by offering different kinds of enticements-healthcare insurance options, part-time or flex-time schedules, project work. "This is where employers need to step outside their normal realm of hiring and be creative," says O'Connor.

And some employers are raising salaries, including Abel Band law firm. "We were having trouble hiring people," says managing partner Cheryl Gordon. "We like to get top of the class, not the bottom of the class, so we raised salaries to be comparable with Tampa." The first hike wasn't sufficient, so it boosted them again to a total increase of about 50 percent.

"It was successful for us because we were able to fill some spots and we don't have the headhunters biting at our associates trying to steal them away by throwing more money at them," she says. Salaries were also raised for paralegals, secretarial assistants and other positions in high local demand. Although the firm increased hourly rates to help cover the costs, it hasn't lost clients, Gordon says. The increase was fairly small, spread out over the firm's 35 lawyers.

"We used to say we can't really pay Tampa salaries; it's a different market and all that. But we can't really say that anymore because it's very expensive to live here, so how can you justify not paying people what it takes to live here?"

Halfacre Construction has raised its wages, too. President Jack Cox estimates his company's labor costs have increased about 25 percent over the past two years, and he has seen wages ripple upward throughout the local building industry. "Traditionally, people were being paid more up North than down here. Our pay scales have caught them in the past two years," he says.

He cites lack of affordable housing as the main impetus. "At the general contractor level, we're typically hiring college graduates, so we have to pay them more because the housing is so expensive in Sarasota."

Compounding the demand for labor, especially for tradespeople, have been the 2004 and 2005 Florida hurricanes, which also put a squeeze on the already short supplies of concrete, steel and other materials.

The 2004 hurricanes "sucked all the labor out of this area. It all went to Charlotte County and the Panhandle because they were paying double to get back up and running," says Cox. Without sufficient labor, "We had to increase our cost on general conditions, because we can't build buildings as fast as we used to," he says. After Hurricane Katrina, Halfacre started passing on escalator clauses to clients, warning them that prices might increase during the time lapse it takes to secure permits.

"We had huge increases last year and thought it could never get worse. But it's gotten worse," says Cox.


Ultimately, employers will raise salaries to equalize with the housing market.

"Any time [a human resources] person is making a decision on whether to hire a person, there are a number of trade-offs you make: It could mean a less qualified person, or it could mean pushing the salary up, or it could mean not filling the job at all," says Tunis. "But in the end, over a five-year period, the salaries have to go up."

Five years is the typical lag between spiking house prices and salaries, says economist Denslow. Even if the real estate market "bubble" bursts, Florida will be less affected because retiring baby boomers will continue driving the demand for housing. And eventually, the relation between wages and house prices will normalize.

"I think what we'll see is wages over the next five years for given jobs coming up to the national average from 5 percent below," says Denslow. "That's going to happen more where house prices have risen more. That would be the South Atlantic coast, and then Collier and Lee, and Sarasota and Manatee."

Since Sarasota prices started skyrocketing a couple years ago, Denslow figures salaries will respond "about now, or pretty much any time now."

And without housing costs casting a shadow over Florida's sun and sand, prospective recruits will once again be happy to cash in on the Florida discount.


School districts are among plenty of other employers struggling to compete for good recruits. But when it comes to education, the inability to recruit good teachers can have effects that ripple through other industries.

"You always worry about the ability to recruit new teachers for the K-through-12 system, because if you're talking about bringing in high-tech firms, they're pretty sensitive to the quality of the local educational system," says University of Florida economist Dr. David Denslow. "Florida has fallen below the rest of the Southeast in teacher pay, and with house prices rising above the rest of the Southeast, then over a 10-year period it will be hard to maintain that quality."

Although Sarasota teachers' wages have been among the highest in the state, schools are having an increasingly difficult time not only recruiting new teachers because of housing costs, but reducing attrition.

"We're also contending with those who are retiring. More emphasis is on being able to pay teachers more so we won't be losing a certain percentage," adds Allyson O'Connor, project manager for the Suncoast Workforce Board's 21st Century Workforce Study. "Teachers are in such demand they can pick and choose where they want to go."

What People Earn

A sample of median hourly wage estimates for 2005 for the Sarasota-Bradenton metropolitan statistical area:

Accountants and auditors $12.09

Bartenders $6.86

Carpenters $15.18

Cashiers $8.20

Dental hygienists $33.66

Industrial truck and tractor operators $11.53

LPNs and Licensed Vocational Nurses $16.82

Lodging managers $26.41

Teachers and instructors $15.21

Tellers $10.86

Source: Florida Agency for Workforce Innovation, Labor Market Statistics, based on second-quarter 2004 survey adjusted by the 2005 second-quarter Employment Cost Index.

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