Three Factors Contributing To Fewer People In The Workforce

A piece Yaron wrote for Forbes Real Estate Council about The United States labor force: “As of the beginning of 2022, there are around three million fewer people employed than before the pandemic. There is an increase in people quitting their jobs, (also known as the “Great Resignation”).

Read more about “Factors contributing to fewer people in the workforce“.

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.

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.