Florida is one of the hottest real estate markets, and it begs the question is there a housing shortage or oversupply in the state?

There is always a seller for each buyer, and while a rising real estate market may indicate supply constraints, that is not always the case. In this analysis, we will look at the raw data and interpret and understand whether there is a housing shortage or oversupply in Florida and what exactly is driving prices higher.

Understanding the real estate market in Florida

Median home prices have surged in Florida during the last two years, partly due to Covid-19, with many individuals going fully remote and choosing to relocate. While some companies have also moved to Florida due to the attractive business policies put in place by Governor DeSantis.

This has created an influx of remote workers looking for better weather and a lower cost of living. This also partly explains the population increase across the state. It explains the increase in rent prices across the state compared nationwide and the lower number of houses available to rent.

Despite the rise in home prices, home prices in Florida are still slightly lagging compared nationwide. On top of this, housing inventory, as the number of active listings is now roughly 50% lower than before the pandemic.

One of the reasons that explain the lower number of active listings is that single-family home transactions have continued to increase throughout 2020 and 2021.

Demand and supply dynamics in Florida

While analyzing the number of active listings is a good way to understand housing supply, it falls short when trying to see the grand picture. The reason is that active listings show homeowners or investors’ intent to sell a property, but it does not paint the full picture to understand the market’s supply side.

For that, we will need to look at the number of houses per inhabitant and compare it with the national average. At the same time, Florida remains one of the top destinations in the country to buy a second home, affecting how we analyze the results since these individuals are not actively looking to sell their property. They might rent it out but are not usually interested in selling it.

There are 10,054,457 residential properties in Florida, which considering the population of roughly 21 million, makes up 0.47 for each inhabitant. This means that, on average, there is roughly a house for 2 Floridians.

Nationwide, it is estimated that there are 142,153,010 residential properties in the US. This equates to 0.43. While it may seem like Florida has more houses available per inhabitant than the rest of the country, it is essential to understand that Florida has 1.04 million second homes, and it is by far the favorite destination to buy a second home.

This means that ~10% of all the houses in Florida are second homes, which pushes the real house per inhabitant figures to 0.429, slightly lower than the national average.

While our initial estimate is based on the Census and the second home data, other studies estimate that 1.7 million homes in Florida are empty. If these estimates are correct, we could estimate that between 15% and 20% of all the residential properties in Florida are not available for renters or buyers.

If these estimates are correct, it explains how the number of listed properties for sale is so low and how the market might continue to rise despite the rising mortgage rates and the declining prices in some areas of the country.

This apparent shortage created by the second home demand, the empty houses, and the short rental market has also increased the number of building permits, which slightly increases the supply but does not have a meaningful effect.

Source: HBWeekly

Conclusion

While several experts are predicting the real estate market to cool off, will it have the same effect in Florida as in the rest of the country?

While there is an increase in active listings from the bottom in 2021, there are still individuals looking to relocate to Florida, and the population is expected to grow. The property rental market should remain stable due to the strong demand and continued shortage of homes.

The main risk for the current market is a possible recession that would push empty residential properties onto the market and could lower the average and median home sale prices, but at the same time, it might not have the same impact on home prices as it will have on rents. The reason is that these houses may come into the market as long-term rentals.

Real-Estate Predictions for 2022

A piece Yaron wrote for Forbes Real Estate Council about the snowball effect of rent inflation: “In 2021, the real estate market saw a historic rise in home and rent prices throughout the U.S., leading many to ask if rent prices will continue to skyrocket in 2022. As I argue here, rent must go up!”

Read more about “the snowball effect of rent inflation“.

The U.S. Economy currently has More Open Jobs than Jobs Seekers

Experts attribute current hiring difficulties to several primary factors: unemployment benefits, pandemic concerns, and childcare. One thing is clear, the issue is not down to a shortage of jobs. In June, according to the Job Openings and Labor Turnover Survey, U.S. job openings soared to a record 10.1 million, exceeding available workers for the first time since the pandemic recession began. A handful of sectors were even tighter than the broad ratio implied. The wholesale trade sector— businesses that sell goods and merchandise to retailers — had a three-month average ratio of just 0.4 workers-per-opening, per Economic Policy Institute data. That made it the tightest industry in the U.S. Meanwhile, the finance, insurance, and government sectors displayed similar ratios of 0.6, and restaurants and accommodation businesses had ratios of 0.8.

U.S Job Opening Hit Record High as Workers Quit in Droves

The sectors most adversely affected by the COVID-related economic shutdown are still struggling to fully recover. Pandemic-related concerns are still a key factor for many Americans, as jobs that require physical interaction with other people (nurses, servers, checkout staff, hotel cleaners, etc.) continue to receive substantially fewer candidates than open positions. University of Massachusetts Boston professor Françoise Carré noted that retail jobs have been particularly grueling during the pandemic because of their “frantic pace” and employees’ fears over catching COVID-19.

Workers Attitude

Harvard University economist Lawrence Katz has highlighted the fact that, while many employers might want things to go back to the way they were before the pandemic, many workers have something else in mind. “It’s a mismatch of expectations and aspirations,” he said.
Rich Templin, a lobbyist for Florida AFL-CIO, a federation of labor unions around the state, commented that the biggest issue is that jobs in the tourism and service industries don’t pay well and don’t provide benefits. “We are seeing a major reset of the labor market in this country because of what we just went through and what we’re going through right now. What business owners are saying is, ‘We want you to come back under the old rules and be paid poverty-level wages,’” Templin said. “And people are saying, ‘no.’”

Chris Tilly, a professor at UCLA’s Luskin School of Public Affairs, said it’s hard to make predictions about what’s next for the labor market, but noted that consumer demand appears to be out pacing retailers’ ability to staff stores –circumstances that give workers more leverage. “I don’t think we’re at a point where workers have permanently gained the upper hand, but I would be cautious about saying exactly when the power is going to shift back more to employers,” he said. The central issue is that “retailers are having trouble attracting workers at the rates of pay that they’re offering. Consumer demand is expanding faster than people are able and willing to go back into the labor force,” he said.

Echoing his sentiments, Sylvia Allegretto, a UC Berkeley labor economist, pointed out:”There’s simply no labor shortage when you’re talking about finding house cleaners for a hotel—there is a shortage of workers who want to work at what you’re offering.” She said the country is experiencing a “wage and benefits shortage.”

Logistic Difficulties

Federal Reserve Chairman Jerome Powell blamed additional human resource factors for supply shortages and the consequent price rises, including skills mismatches and geographic differences. Hiring new employees is a time-consuming process.

There are limits on how fast employers can hire, and the problem is only aggravated by the high level of people now quitting their jobs to pursue other opportunities.

Skills mismatches are a solid contributor to rising costs and slower economic recovery, including within the real estate industry in particular.
Kevin Liang, vice president at Argo Construction, commented that builders have not been able to keep up with demand due to skilled labor shortfalls. “That raises concerns about the quality ofwork being done on construction sites,”Liang said. “And the current supply chain issues, everything from material shortages to scarce shipping containers, to a shortage of truckers, everything in that supply chain has a significant effect on construction.”
Gary Kaplan, president of construction for AXA XL, noted that the sector’s labor shortage concerns are not new, but the shortfall effects are beginning to be reflected in insurance claims. Namely, unskilled workers are being mentioned as the number one cause for subcontractor default insurance claims.

It is also likely that geographical mismatches are occurring between where businesses are hiring and where the unemployed are currently located. These mismatches are not only present across state lines, but also within metropolitan areas.

Where is the price rising?

In June, the National Federation of Independent Business (NFIB), found that 47% of small business owners are raising their average selling prices, the highest reading since January 1981, at the tail-endof the Great Inflation of the 1970s.

Price hikes were most frequent in wholesale (82% higher, 4% lower), retail (63% higher, 1% lower), and manufacturing (62% higher, 5% lower). Seasonallya djusted, a net 44% plan price hikes (up 1point). The NFIB report concludes, “The incidence of price hikes on Main Street is clearly on the rise as owners pass on rising labor and operating costs to their customers.”

Why Prices are Rising?

The federal reserve has highlighted two main culprits for this current rise in prices: Supply Shortage & Hiring Difficulties

Supply Shortage

Due to the supply chain bottleneck mentioned above, the prices for many goods and products have risen significantly. For example, in May, lumber (LBS) reflected a massive 461% increase over the past year. However, lumber prices have begun to fall, and as of mid-August are only 20% up on their pre-pandemic price, at the end of January2020. This data may support the Fed’s position that current inflation will mostly be short-lived.

In terms of shelter, which makes up nearly one-third of the CPI, prices increased 0.5% for the month, and are now 2.6% up on the June 2020 figures.

“What this really shows is inflation pressures remain more acute than appreciated and are going to be with us for a longer period,” said Sarah House, senior economist for Wells Fargo’s Corporate and Investment Bank. “We are seeing areas where there’s going to be ongoing inflation pressure even after we get past some of those acute price hikes in a handful of sectors.”
Returning to the lagging effect of higher house prices on inflation, a
paper by Fannie Mae suggests that CPI components for rents tend to follow the Case-Shiller price index, with a delay of about five quarters. Eric Brescia, an economist at Fannie Mae, has drawn the following conclusions:

Due to how shelter costs are measured, the housing components of the indices decelerated considerably over the pastyear, despite robust home price appreciation. This has kept topline inflation from being even higher.

Lagged effects from the past year’s house price appreciation and more recent rent recovery could begin to flow into inflation measures as soon as the May readings.

House price gains to date suggest an eventual acceleration in shelter inflation from the current rate of 2.0 percent annualized to about 4.5 percent. If house price growth continues at the current pace, shelter inflation would likely move even higher.

Timing lags suggest that increasing shelter inflation will last through at leastצ2022, meaning “transitory” increases to the overall inflation rate may be more prolonged than many expect.
Due to the heavy weight given to shelter, housing could contribute more than two percentage points to core CPI inflation bythe end of 2022 and about one percentage point to the core PCE. Both would be the most substantial contributions since 1990.

The global supply chain grid lock may not be cleared until well into 2022. Shipping rates continue to soar, delivery delays are up significantly, and inventories are insteady decline. Container freight rates, forexample, have increased more than 400% over pre-pandemic levels.

According to the Institute for Supply Management’s latest data, delivery timeshave also slowed, with manufacturing supplier delivery times roughly 30%  slower than they were a year ago.

“Shipping costs are increasing at a double-digit pace, wait times for products remain unusually long even as throughput at ports has improved, inventories are still inadequate, and labor is hard to find,” theWells Fargo economists wrote. “Not onlyare these problems symptomatic of ongoing supply chain constraints, they area source of price pressure that continues to filter through the economy and stoke inflation.”

Ken Simonson, chief economist at the Associated General Contractors of America, commented in the AGC’s June release that, “Steadily worsening production and delivery delays have exceeded even the record cost increases for numerous materials as the biggest headache for many non-residential contractors. If they can’t get the materials,they can’t put employees to work.”

He added that contractors are being told they must wait nearly a year to receive steel shipments and 4-6 months for roofing materials. As a result, home builders could not keep up with demand, manufacturers faced delivery delays of materials needed to finish goods, and “it remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled trades people.”

Of course, the construction industry is far from being alone in this predicament. Two other notable sectors suffering from supply issues are the semiconductor and automotive industries, as the Computer Chip Shortage of 2021 shows no signs of slowing.

Intel has warned that the global semiconductor shortage that has affected the auto industry and raised the cost of some consumer electronics could last until the middle of 2023. “While I expec tshortages to bottom out in the second half [of 2021], it will take another one to two years before the industry is able to completely catch up with demand,” CEO Patrick Gelsinger said recently.

That is particularly disheartening news for carmakers, with many of their plants lying idle this year due to a lack of chips –General Motors was forced to stop making most of its full-sized pickup trucks for aweek in July. Due to the limited supply ofnew vehicles, used car prices are soaring.

Goldman Sachs has said that new car inventories are unlikely to recover until September and will remain well below pre-pandemic levels through the end of next year. The bank said it expects new car inventories to fall further in August, toaround 1 million vehicles, before beginning to steadily increase in September. The firm forecasts that new car prices will likely continue to rise over the next few months, peaking around 6% above their pre-pandemic level toward the end of this year.

Accelerating Technology Adoption

The COVID-19 pandemic and resulting economic shutdown have substantially increased technology adoption across all industries. A McKinsey survey from Oct 2020 finds that companies’ responses to this crisis have sped up the adoption of digital technologies by several years—and that many of these changes could be here for the long haul.

According to the McKinsey Global Survey of executives, their companies have accelerated the digitalization of customer and supply-chain interactions, as well as their internal operations, by three to four years. Furthermore, the share of digital or digitally enabled products in their portfolios has been expedited by an unprecedented seven years. Nearly all respondents agreed that their companies have instituted at least temporary solutions to meet many of the new demands on them, and much more quickly than they had thought possible before the crisis. In addition, respondents expect most of these changes to be long-lasting and are already making the kinds of investments that all but ensure they will stick. When asked about the impact of the pandemic, executives say that funding for digital initiatives has increased above all else—more than increases in costs, the number of people in technology roles, and the number of customers.

Moving toward online channels

Consumers have moved dramatically toward online channels during the pandemic, and companies and industries have responded in turn. The survey results confirm the rapid shift toward interacting with customers through digital channels. They also show that adoption rates are years ahead of where they were when previous surveys were conducted. Respondents are now three times likelier to say that at least 80% of their customer interactions are digital.

The Difference Between Sectors

However, the results also suggest that rates for developing digital products during the pandemic differ across sectors. Given the timeframes for making manufacturing changes, the differences, are more apparent between sectors with and without physical products than between B2B and B2C companies. For example, respondents in consumer packaged goods (CPG) and automotive and assembly report relatively low levels of change in their digital product portfolios. By contrast, the reported increases are much more significant in healthcare and pharma, financial services, and professional services, where executives report a jump nearly twice as substantial as those reported by CPG companies.

The customer-facing elements of organizational operating models are not the only ones that have been affected. Respondents report similar accelerations in the digitalization of their core internal operations (back office, production, and R&D processes, among others) and supply chain interactions. Unlike customer-facing changes, this rate of adoption is consistent across regions.

The speed with which respondents say their companies have responded to a range of COVID-19-related changes is remarkable, even more so than digitalization processes. In the case of remote working, respondents say their companies moved 40 times more quickly than they thought possible before the pandemic. Previously, respondents say it would have taken more than a year to implement the level of remote working that took place during the crisis. In actuality, it took an average of 11 days to implement a workable solution, and nearly all companies introduced workable solutions within a few months at most.

Respondents across sectors and geographies are most likely to report a significant increase in remote working, changing customer needs (a switch to offerings that reflect new health and hygiene sensitivities), and customer preferences for remote interactions. Respondents reporting significant changes in these areas and increasing cloud migration are more than twice as likely to believe that these shifts will remain after the crisis than to expect a return to pre-crisis norms. Both remote working and cloud migration are viewed as more cost-effective than previous practices, while investments in data security and artificial intelligence are most often identified as helping to position organizations better than before the crisis.

The extent of technology’s differentiating role in this crisis is stark. At the organizations that experimented with new digital technologies during the pandemic, and among those that invested more capital expenditure in digital technology than their peers, executives are twice as likely to report outsize revenue growth.

The results also indicate that, along with the multiyear digital acceleration, the crisis has brought about a sea change in executive mindsets on the role of technology in business. In McKinsey’s 2017 survey, nearly half of executives ranked cost savings among the most important priorities for their digital strategies. Now, only 10% view technology in the same way; in fact, more than half say they are investing in technology to pursue a competitive advantage or refocusing their entire business around digital technologies. The report’s authors concluded: “The notion of a tipping point for technology adoption or digital disruption isn’t new, but the survey data suggest that the COVID-19 crisis is a tipping point of historic proportions—and that more changes will be required as the economic and human situation evolves.”

Edward Yardeni predicted, “In my Roaring 2020s scenario, technological innovations will boost productivity-led growth and real pay per worker while keeping a lid on inflation.” Digitalization is the key to modernization. This is why 85% of companies accelerated their digital transformation programs last year.

Technology leading to improved productivity via platforms like Instawork, ShiftPixy, Shyft, and Jobletics can also help to fill short-term workforce gaps. The Instawork network, for example, has more than 1 million workers across the U.S., and the number of available shifts on its platform has grown 8x in less than two years, with professionals finding work in less than 24 hours.

The pandemic, in conjunction with a difficult insurance market, has pushed contractors to reevaluate their old ways of doing business. “The pandemic forced contractors to do their work differently, and I think that was an improvement,” Gary Kaplan, president of construction for AXA XL, said. “They brought in technology to automate some stuff that was pretty clunky.”

According to Kaplan, the adoption of technology by construction firms tended to be a lower priority before the pandemic. But COVID forced the sector to bring in newer, more innovative tools to improve safety. Michael Teng, assistant vice president of regional pricing, products, and underwriting at Sentry Insurance, agreed that the pandemic has spotlighted workplace safety. That includes the use of telemedicine, which picked up significantly in construction: “We began to see a lot of contractors starting to utilize electronic badging.” The sector also improved processes for workers entering job sites and increased the use of wearable technology tools, such as monitors.

Location is Everything

For several reasons, manufacturers of all sizes are taking a hard look at location – both where they produce and where their supplies are located. Recent upheaval and supply chain issues, including the COVID-19 pandemic and trade disputes, have driven home the point for companies that it is irresponsible to maintain just one point of production far away from their consumer base. In addition, rising labor costs in China and other parts of Asia, when coupled with the economic power of the U.S. consumer, are encouraging manufacturers to rethink their conventional goods production strategy.

Of course, the issue of relocating production closer to home dovetails with another high-profile challenge: hiring difficulties in the USA and other developed nations.

Chnging Workforce Demographics

Apart from the wage angle, hiring difficulties have also led many businesses to expand their horizons when it comes to recruitment considerations, which includes lowering their standards in terms of qualifications and experience. Teenagers are now filling an essential gap for businesses across the U.S. who are struggling with a labor shortage. In May 2021, more than 22% of teens ages 16-19 had a job, the highest level since 2018, according to the Bureau of Labor Statistics.

Companies and other employers are also beginning to introduce phased-retirement and part-time work opportunities. Americans’ increased longevity, coupled with the need to finance a growing share of their care, are significant factors driving older adults to delay retirement and remain in the labor force. While the U.S. workforce is expected to grow at just 0.5% over the next decade, adults over age 65 represent the fastest-growing segment. By utilizing their potential, companies are able to draw on several other benefits, such as retaining skilled workers for longer, and enabling them to pass on key institutional knowledge to their younger colleagues.

Immigration

Looking elsewhere for workers will also result in many companies opting to import workers from overseas in order to resolve hiring problems and offset the increasing wage and product costs driven by current inflation. This may however be bad news for American talent, as the presence of foreign guest workers can depress wages and conditions in the sectors that employ them, argued Kent Wong, director of the University of California, Los Angeles Labor Center and former staff attorney for the Service Employees International Union. “Historically, employers have pushed for relaxing visas and relaxing immigration policies in order to maintain a low-wage workforce,” he said.

Global businesses that have established connections and an existing pipeline of migration workers will enjoy far greater flexibility in their hiring process. During 2020, the COVID-19 pandemic had a significant effect on immigration and visas, fueling calls for lawmakers to allow for additional H-2B visas, those allocated to temporary seasonal workers in non-agricultural jobs, such as hospitality, landscaping, food service, and processing.

Perhaps unsurprisingly, the unemployment rate for leisure and hospitality workers, while shrinking, was still the highest of all industries in the BLS May jobs report, at 10.1%. In a June 21 report, Goldman Sachs economics researchers wrote: “We expect that the collapse in visa issuance during the pandemic will reduce the labor force for the next few years.” That collapse reduced the labor force by 750,000 people, with 450,000 of those stemming from a drop in temporary worker visas and 300,000 from immigrant visas. “Since the loss in immigration in 2020 won’t be offset by higher immigration going forward, most of this drag will persist,” they continued.

In response, the U.S. Chamber of Commerce has advocated expanding legal immigration and access to worker visas by doubling the annual H-2B visa quota and introducing a permanent exemption for returning workers, among other measures. While many agree that more worker visas are generally beneficial to the economy, it may not be a straightforward solution.

“The labor supply everywhere is disrupted,” said Abigail Wozniak, a labor economist at the Federal Reserve Bank of Minneapolis. “It might make sense on paper to open the doors to more foreign workers, but these disruptions are happening in the individuals’ home countries as well, matching the right employers with the right employees takes time, and employers who aren’t accustomed to the rules of various worker visa programs are unlikely to adopt them suddenly.”

The Florida Real-Estate Market and the Minimum Wage Increase

Minimum wage increases are a constant yet controversial subject across America, with politicians, economists, activists, and the general public weighing the pros and cons. Broadly speaking, the effects of any increase tend to be viewed as positive for low-wage earners and negative for small businesses. The national debate surrounding the $15 minimum wage rages on, but Florida voters passed a ballot proposition last November that will raise the statewide minimum wage to $15 an hour. Florida is the 8^th state to pass such a resolution. According to the Economic Policy Institute, this measure will raise wages for around half of Florida’s workforce (as 50.1% of people currently earn less than $15 an hour).

Concentrarions of Low-Wage Workers – Florida VS. Nationwide 

Statewide, 3.85M workers (50.1%) earn under $15 an hour; 2M (26.8%) earn under $10 am hour

When and How?

Florida’s minimum wage will gradually be raised to $15 an hour over the next six years.

Currently set at $8.56, the minimum raise will increase to $10 per hour in September 2021, and will then increase by $1 every year until it reaches $15 an hour in 2026.

Then, from September 30, 2027, Florida’s minimum wage will be adjusted for inflation on an annual basis.

Effects of Raising the Minimum Wage

Economists have always differed in terms of both the type and extent of economic consequences that may arise as a result of minimum wage increases – and they continue to represent a whole spectrum of views today. Main points on each side include possible effects on jobs, inflation, small businesses, and the federal deficit.

The standard reasoning against raising the minimum wage is that wage increases are an inefficient way to ward off financial insecurity. However, if the increase is too high and places too great a burden on businesses, it can also affect employment.

Advocates for raising the minimum wage argue that a higher starting wage will increase financial stability for low-wage earners, giving them more money for expenses and necessities like rent, and reduce government welfare spending. As low-wage workers tend to spend most of their extra earnings, this will help to stimulate the economy and spur increased business activity and job growth. In addition, there will be less job mobility, and workers will keep their jobs longer, which will offset the cost of higher wages. Increasing the minimum wage also benefits large companies and urban areas, which can support higher wages than small businesses and rural areas.

Crucially, from our perspective, raising the minimum wage strengthens investors’ ability to raise rent accordingly in lower-income areas. It also significantly reduces the risk of missed rent.

U.S. Job Openings Hit Record High as Wokers Quit in Droves

Hiring Diffculties & Worker Attitudes

The U.S. Economy Currently has More Open Jobs than Job seekers

Experts attribute current hiring difficulties to several primary factors:  unemployment benefits, pandemic concerns,  and childcare. One thing is clear, the issue is not down to a shortage of jobs. In June, according to the Job Openings and Labor Turnover Survey, U.S. job openings soared to a record 10.1 million, exceeding available workers for the first time since the pandemic recession began. A handful of sectors were even tighter than the broad ratio implied. The wholesale trade sector — businesses that sell goods and merchandise to retailers — had a three-month average ratio of just 0.4 workers-per-opening, per Economic Policy Institute data. That made it the tightest industry in the U.S. Meanwhile, the finance, insurance, and government sectors displayed similar ratios of 0.6, and restaurants and accommodation businesses had ratios of 0.8.

The sectors most adversely affected by the COVID-related economic shutdown are still struggling to fully recover. Pandemic-related concerns are still a key factor for many Americans, as jobs that require physical interaction with other people (nurses, servers, checkout staff, hotel cleaners, etc.) continue to receive substantially fewer candidates than open positions. University of Massachusetts Boston professor Françoise Carré noted that retail jobs have been particularly grueling during the pandemic because of their “frantic pace” and employees’ fears over catching COVID-19.

Harvard University economist Lawrence Katz has highlighted the fact that, while many employers might want things to go back to the way they were before the pandemic, many workers have something else in mind. “It’s a mismatch of expectations and aspirations,” he said.

Rich Templin, a lobbyist for Florida AFL-CIO, a federation of labor unions around the state, commented that the biggest issue is that jobs in the tourism and service industries don’t pay well and don’t provide benefits. “We are seeing a major reset of the labor market in this country because of what we just went through and what we’re going through right now. What business owners are saying is, ‘We want you to come back under the old rules and be paid poverty-level wages,’” Templin said. “And people are saying, ‘no.’”

Chris Tilly, a professor at UCLA’s Luskin School of Public Affairs, said it’s hard to make predictions about what’s next for the labor market, but noted that consumer demand appears to be outpacing retailers’  ability to staff stores – circumstances that give workers more leverage. “I don’t think we’re at a point where workers have permanently gained the upper hand, but I would be cautious about saying exactly when the power is going to shift back more to employers,” he said. The central issue is that “retailers are having trouble attracting workers at the rates of pay that they’re offering. Consumer demand is expanding faster than people are able and willing to go back into the labor force,” he said.

Echoing his sentiments, Sylvia Allegretto, a UC Berkeley labor economist, pointed out: “There’s simply no labor shortage when you’re talking about finding house cleaners for a hotel—there is a shortage of workers who want to work at what you’re offering.” She said the country is experiencing a “wage and benefits shortage.”

Leading Brands are Raising Wages

The availability of vaccines, paired with a broader reopening of the economy, has spurred a snapback in economic activity in recent months, and consumer demand has vastly outpaced businesses’ hiring ability. Scrambling to find workers as business surges, many companies have started to raise wages and offer hiring bonuses to attract candidates.  Average hourly earnings were up 4% last month over the same period last year. In May, Chipotle announced plans to raise its hourly wages to an average of $15 by the end of June. Soon after, McDonald’s said it would raise the hourly wage of its restaurant employees by an average of 10%. Costco is among other companies that recently pledged to increase their minimum wages to at least $15. Disney is also offering $1,000 bonuses to recruits who sign up to become housekeepers and kitchen staff amid the labor shortage.

“If a bunch of large employers in the labor market raise pay, other employers are going to be compelled to raise pay a little bit too, to make sure that they can recruit and retain their workforce,” Ben Zipperer, an economist at the left-leaning Economic Policy Institute, told Insider in March. Zipperer said that small businesses in those areas will probably feel those spillover effects and will likely feel compelled to respond.

A recent working paper from the University of California examined the impact of Amazon, Whole Foods, Target, Walmart, and Costco’s starting wage increases. The researchers found that minimum wage raises at big firms may have had a knock-on effect at other businesses in the area. Following wage increase announcements at large companies, nearby firms followed suit, even matching the announced wage in some cases.

 

The study looked at the companies that were most affected by these increases or employers in the same labor market where a large share of wages before the announcements was at rates below the new voluntary wages of these major companies. According to the research brief, the more affected companies went from having similar wages to the less affected companies before the big company announcements, to then raising their advertised wages significantly afterward.

A separate report from the Labor Department’s Bureau of Labor Statistics noted that the big monthly hike in consumer prices translated into negative real wages for workers in the month of June. Real average hourly earnings fell 0.5% for the month, as the CPI increase negated a 0.3% increase in average hourly earnings.

Florida Postioned as Long Term Winner Post COVID

As a direct result of Florida’s generally well-balanced approach to handling the pandemic, protecting the state economy alongside public health, the Sunshine State has become a leader in population growth. More Americans are now choosing to move to Florida than ever before.

Florida’s unemployment rate now stands at 5%, lower than the 5.4% national unemployment rate. In addition, the state’s attractive tax policies (including 0% state income taxes) are a strong allure for both businesses and high-earners.

It is against this backdrop that Florida has become the first southern state to raise the minimum wage to $15 by 2026. More than 50% of the Florida workforce will receive a pay raise (as they now earn less than $15 an hour). This will naturally attract young blue-collar workers from neighboring states to Florida.

As a result of Florida’s proactive yet thoughtful economic planning, creating balanced initiatives to boost the economy, the state may well have hit on a winning strategy that others are sure to follow.

Market Insights

As the economy recovers momentum following its pandemic-induced slowdown, attention has turned to speculation about the soaring inflation rate in the United States. However, expert opinions differ on whether the current high inflation is transitory or will have far longer-lasting effects.

Although the Federal Reserve has referred to the current 5% inflation as “transitory,” it has shied away from defining just how transitory the situation might be. Notes reveal that the Fed generally expects to see elevated inflation for the remainder of the year, with it moderating as we enter 2022. However not all Fed policymakers are as confident, with some anticipating that inflation may linger further into 2022.

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