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 sun and sand won't buy a house-and neither will many salaries in Southwest Florida 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 and are losing existing employees.

"You just can't tell people, 'Sell your house up North and buy twice the house down here,'" says University of Florida economist David Denslow.

Over the past 10 years, prices for Florida homes 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. But about five 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," he says. "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."

Squeezing Workers Out

Plenty of Southwest Florida employers have lost workers to more affordable areas or watched recruits turning tail once they see housing prices.

"I get a call, probably one a day, of a company that is having issues with regard to attracting or keeping employees," says Tammie Nemecek, president of the Economic Development Council of Collier County. "A lot of people are selling their houses and moving to the mid-Florida or North Carolina areas. They're paying off debt, buying a house with cash, and getting a job making the same they were making here."

Allun Hamblett, executive director of human resources for Collier's schools, says the district lost a dozen teacher recruits after they saw housing prices. He worries that the disappearing stock of rental housing will make the situation even worse.

"One thing that really scared me this year was the number of apartments going condo," he says. The school district has historically relied on apartment complexes, which welcomed district employees as stable renters and often offered such bonuses as security-deposit waivers. This year, there was little available.

The district faced similar problems with upper-level, administrative positions. "We noticed this with recruiting a Gulf Coast High School principal," says Hamblett. "We were absolutely stunned that we just didn't have candidates lined up, because that's a premier school, a wonderful facility, a beautiful location to live. We shouldn't have had any trouble attracting administrators from other parts of the country, but we did."

That could spell problems for other industries. "You always worry about the ability to recruit new teachers for the K-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 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."

Nemecek also lost a top candidate for an EDC position because of the housing situation, and she's heard complaints that even such positions as physicians are tough to recruit. "The last year has been the most significant outcry from the businesses. It's difficult for industry here. With the escalation of home prices, it has exacerbated the problem, not just middle-management folks but even upper-management folks," she says.

Bonita Grande Aggregates, a mining and road-building company, has raised its wages twice in the past year and still can't find enough qualified workers, especially crane and dragline operators. The Bonita Springs company's workers come from Immokalee, LaBelle, even as far away as Arcadia.

"I've got a couple of guys home-based in Lakeland," says general manager Ray Knowles. "They come down here and stay in their camping trailers through the week and go home on weekends. That's how far away I've gone to find employees."

Southwest Florida's labor market is tighter than the rest of the state and the nation. In July, unemployment rates were 3.8 percent in Charlotte County, 3.7 percent in Collier, and 3.2 in Lee, compared to the state's 3.8 percent and the nation's rate of 5.0, according to the Florida Agency for Workforce Innovation.

At the same time, median sales prices for an existing single-family home (among realtor-assisted transactions) were $236,600 in the Punta Gorda Metropolitan Statistical Area (MSA), $287,500 in the Cape Coral-Fort Myers MSA, and $490,400 in Naples MSA, according to the Florida Association of Realtors. Statewide, it was $252,300.

Meanwhile, Southwest Florida's wages are lagging behind both the state and nation. The U.S. Department of Labor cites the average annual salary (as of May 2004) as $32,880 in Cape Coral-Fort Myers, $34,870 in Naples, and $29,980 in Punta Gorda. Those are up from 2001 figures of $29,600, $30,790 and $27,530 for the three counties, respectively, but still fall behind the 2004 figures for the state, $33,320, and nation, $37,020.

Out-Priced by Outsiders

So why aren't wages rising?

They are, says Tracy Lansberry, director of programs for Southwest Florida Workforce Development Board, which covers Charlotte, Collier, Glades, Hendry and Lee counties. "In the three coastal counties, the wage structure is definitely going up because of the small labor market," he says.

But are they keeping up with housing prices?

"Definitely not," he says. "When you talk about an $8-an-hour job going to $10, and the median price of a home going in Collier to something like $400,000, there's no comparison."

Bill Dobson, economic analyst for the Florida Agency for Workforce Innovation, cites a disconnect between the local economy and what's driving house prices in Southwest Florida. 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. Household income exceeds wage income throughout the region.

"A lot of industries in that area are just low-paying, and a lot of housing costs get driven up by retirees moving there," he says. 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 North Port, compares it to 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 high-tech companies," he says. In Southwest Florida, the cost increase "has been independent of the increase in salaries."

In addition, says Dobson, "our labor market in Florida is made up of small businesses; small businesses tend to pay less than large businesses."

That's the case with Sarasota-based Web site developer GravityFree, 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?"

Raising salaries would mean raising the rates the company charges, he says, and that can be risky. "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 and that can also hurt you."

When the nonprofit Collier EDC faced losing its top recruit, it couldn't have raised its salary offer enough, says Nemecek. "I would have to pay a position that would typically be in the mid-$40,000s probably a $60,000 to $70,000 wage, and I can't do that."

Inching Toward Equilibrium

Companies are struggling to find ways to respond to the market. Economic and work-force developers suggest offering the upper end of wage ranges and the best benefits, and taking a fresh look at schedules and at workers. Many baby boomers moving to the area want or need to continue working, so employers might be able to tap into that labor pool with alternative scheduling and benefits structures.

A group of local healthcare businesses has asked Florida Gulf Coast University to reinstate its program to produce med techs because of a growing shortage. Some are offering sign-on bonuses for nurses. Lee Memorial Health System is exploring options to help employees afford housing. The Sarasota branch of Vengroff, Williams & Associates financial services firm is working on a rent-to-own housing program for employees. Private-public efforts also are working on relief through community land trusts and other initiatives.

Sometimes, companies simply have to leave a position open, or settle for a less-qualified candidate. But in many cases, companies just focus on staying competitive within the local market rather than trying to recruit from outside. By keeping salaries competitive locally, the Collier EDC was able to hire two people who were already in the process of moving to the area.

And a number of employers are raising salaries-some significantly.

"I have seen in Southwest Florida a rather large increase in wages in the last year or two, which is just a response to how tight the local labor market is," says Jim Wall, quality improvement manager for Southwest Florida Workforce Development Board.

Among those hiking salaries is Sarasota law firm Abel, Band, Russell, Collier, Pitchford and Gordon.

"We were having trouble hiring people. We like to get the top of the class, not the bottom of the class, so we raised salaries to be comparable with Tampa," says shareholder Cheryl Gordon. The first hike wasn't sufficient, so the firm boosted them again to a total increase of 50 percent. Salaries were also raised for paralegals, secretarial assistants and other high-demand positions.

"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.

In the construction industry, competition is especially fierce. Bonita Grande Aggregates took out a full-page advertisement in local newspapers in August seeking heavy-equipment operators.

The hot building market has drawn many outside companies, which raid local companies' labor forces with higher wages, says Knowles. Those wages, more in line with markets that the newcomers are coming from, make it harder for local companies to compete.

He's paying crane operators and dragline operators about $26 per hour now-twice the going rate a decade ago. And that's after two wage hikes in the past year, including 4 percent this past June and 5 percent the previous August.

"From what I understand, we are paying comparable rates to other rock mines in the area," says Knowles. Other road- and site-building companies might pay higher wages, but the work is less certain; while most companies lay off workers between projects, Bonita Grande offers long-term employment, he says.

In the past year, the situation has worsened as demand for workers compounded.

"After Hurricane Charley, we saw wages increase dramatically in Charlotte, just based on the fact there was so much FEMA money and individuals were able to find work in clean-up and recovery," mostly related to construction and service industries, says Wall, of the work-force development board. "As those monies are used up, in order to keep employees, employers have had to maintain the higher wage scale."

Knowles needs to fill five positions, two of them critically, and he expects he'll have to sweeten the pot for those two. "Basically, if I find someone who's qualified, they're going to get what they want almost," he says. "I hate to say that, but that's about where we're at."

Five-Year Lag

Ultimately, most agree, employers will raise salaries and the market will begin to equalize. A lag of about five years between spiking house prices and salaries is typical, says economist Denslow.

Even if the real estate market slows nationally, retiring baby boomers will continue driving the demand for housing in Florida. 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."

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