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Why Florida's unemployment rate is so much higher than national average

Mild euphoria over a substantial drop in Florida's unemployment rate last week may have overshadowed a harsh reality. Compared to most of the country, we're still pretty lousy.

Even with its jobless rate falling to 11.5 percent, Florida is still tracking a huge 2.6 percentage points higher than the national average. That's better than a month ago, but it's still the kind of gap not seen since the wake of the 1970s recession.

Economists have long warned Florida would lag a national recovery. But was it supposed to be this far behind?

In a State of the States report last week, Wells Fargo Securities cited 10 states that had both weak economic fundamentals and had undergone a severe recession. Three of them — Nevada, Rhode Island and Florida — were singled out as "likely to have the most protracted economic recoveries."

The housing bust and related implosion of the construction industry have been the single biggest albatross holding down any robust recovery. But it's not the only economic drag.

Destruction of construction: Up until the mid 2000s, Florida's top job creator was growth. With growth, comes lots of building. Since the Great Recession struck, the state has shed 350,000 construction jobs, cutting the industry by more than half. The industry added 3,600 jobs in February, but it's still down 15,200 jobs since just last year.

And those jobs are not coming back quickly. The foreclosure crisis has left Florida with a hangover of cheap homes that linger on the market, not to mention almost 1.6 million vacant homes (more than any other state).

The median price of a newly built home nationally ($230,600) is now 48 percent higher than that of an existing home being resold ($156,100). Home buyers are opting for the bargains, pushing down sales of new homes to record lows. Last month, builders broke ground on the fewest homes in nearly two years.

The bottom line for the state's home building industry?

"A lot of people who moved to Florida to work during the construction boom were unskilled workers, and it's just very hard for those folks to find new work," said Mark Vitner, a senior economist with Wells Fargo.

Missing the manufacturing rebound: Makers of automobiles, durable goods, electronics, and business equipment are ramping up again.

Florida isn't invited to the party.

"Manufacturing in the country is doing great," said Hank Fishkind, a central Florida economist and head of Fishkind & Associates. "Unfortunately, in Florida most of our manufacturing is related to the housing industry: concrete blocks, door frames, milling, that kind of stuff … And our manufacturing is not going to recover until our housing recovers."

Trapped in a vicious cycle: With a higher unemployment rate than most states, many Floridians have less disposable income to spend at restaurants and shops. Those businesses then require fewer employees. That forces some to lay off workers or to close. Which leads to more unemployed.

Chicken, meet egg.

Lower average wages: Many of the newly created jobs pay less than the ones lost. Florida has lost construction, government and financial services jobs while it gained a little ground in retail, tourism and health care (primarily lower-paid home health aides and clinic workers).

Legislators in 12 states are considering minimum wage hikes, according to a recent report by the Employment Policy Institute. Florida is not among them.

Lower wages equals less disposable income. Again, feeding the chicken and egg scenario.

Space coast fizzling: The looming end of the space shuttle program has hit Florida's Space Coast like a sonic boom.

United Space Alliance, an organization that partners with NASA to run the shuttle operation, said it was cutting 549 workers in a mass layoff notice filed in February. That was on top of 153 layoffs announced in November.

Eventually, most of the 9,000 workers connected to the Space Coast will need to find new jobs, putting a huge damper on Brevard County's economy.

Stifled small businesses: Corporate profits are up strongly with many large companies seeing the recession in the rearview mirror.

Florida, however, is a land dominated by small businesses, claiming relatively few Fortune 500s for a state with nearly 19 million residents.

"Normally we'd look for small firms to account for a lot of the growth (out of a recession). Especially in Florida," said Scott Brown, chief economist with Raymond James in St. Petersburg. "For a lot of reasons — tight credit, for one — you're not going to see a large number of business startups at this point."

Higher gas prices: Florida's tourism industry showed signs of mending a few months ago. But rising gas prices tied to turmoil in the Middle East are dampening enthusiasm.

Short-term, the response could be muted, some economists predict. Vacation-goers would still come to Florida but perhaps spend a little less eating out or stay at cheaper hotels to offset the cost of fueling up.

Long-term, if the Middle East unrest gets worse: "If we see (oil at) $180 to $200 a barrel, then we're talking about another severe recession even though we haven't exactly come out of this one yet," said Brown of Raymond James.

Lost government jobs: Local and state governments in hard-hit states like Florida are under the most pressure to cut jobs and slash services in hopes of balancing their budgets.

With no personal income tax, Florida relies on property tax revenues to prop up its budget. With housing prices down 54 percent from their 2006 peak, the state has been grappling to plug an estimated $3.8 billion budget deficit. Gov. Rick Scott wants to eliminate 7 percent of the state's government jobs, laying off about 6,700 state workers, to make the numbers work.

The BP effect: Economists are divided over the lingering effects of the massive BP oil spill in the Gulf.

Fishkind, for instance, points out that tourism numbers have improved, seafood is becoming popular again and many Panhandle businesses are faring better, perhaps due in part to BP's pro-Florida ad campaign.

Nonetheless, he concedes the oil spill hit Florida's tourism and seafood industries during peak season "and those jobs aren't coming back."

Structural Unemployment: There are two types of unemployment: Cyclical unemployment refers to jobless in industries that ebb and flow based on economic conditions — like real estate sales. Structural unemployment refers to jobless who worked in professions or trades that are being phased out or offshored and not expected to return — like certain manufacturing jobs made obsolete by technology.

Florida, and Tampa Bay in particular, have felt the impact of call center jobs that were offshored to cheaper labor and are unlikely to return.

Though construction typically falls into the cyclical category, the ongoing housing slump has changed the game, said Joseph Phelan of Florida New Majority, a South Florida advocacy group for the state's 1.1 million jobless.

Construction workers 50-years-old and up who lost their jobs the last several years may have trouble ever finding work in their industry again, Phelan said. "You've created a whole new level of people who are structurally unemployed who before were cyclical."

Why Florida's unemployment rate is so much higher than national average 03/26/11 [Last modified: Saturday, March 26, 2011 5:37pm]
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