State Government Employment
[APRIL 1, 1998] State government in Michigan employs more than 64,000
people, a small percentage of the total state work force of 4.2 million. In fact, local
government workers in Michigan (including K12 schools) outnumber state employees
Number and Distribution
Trends in state government employment are important because they reflect changes in the
priorities of state policymakers and the public. The number of state workers and the
departments for which they work are a sure reflection of past and current political
debate. For example, during the last 20 years, reflecting the increased emphasis on crime
and longer punishment, the Department of Corrections work force rose 240 percent
while total state government employment declined by 5 percent.
Exhibit 1 presents the
current number and distribution of state government workers in Michigan. Of the roughly
64,000 full-time equated classified state employees, the largest number work for the
Department of Corrections: more than 17,000a little more than one in every four
state employees. Next in size is the Family Independence Agency, with about 14,000
employeesslightly less than one in every four state employees. Together, these two
departments account for nearly half of state government employment.
Exhibit 2 summarizes the
change in state government employment during the 1990s. During the recession early in the
decade, total state government employment declined more than 9 percent; since the
recession ended, in 1992, it has remained flat, at about 64,000. Although the state work
force expands and contracts to some extent with the economy, overall, state employment
essentially has been stable: The size of the state work force of the current fiscal year
(199798) is nearly identical to that of 20 years ago.
Although the level of state employment
has not changed significantly in the last 20 years, the composition has. Exhibit 3 groups state workers into six general categories: human
services, general government, regulatory, safety and defense (including corrections),
agriculture and natural resources, and transportation. The composition of the
state-government work force has changed primarily in two areas.
The human services category (social services,
mental health, and public health) has declined sharply, from comprising
52 percent of state employment in the late 1970s to 33 percent today.
The safely and defense
category (including State Police and Corrections) has increased dramatically,
from 13 percent of the total in the late 1970s to 34 percent today;
in the Department of Corrections alone, state employment has more
In 1996 Gov. John Engler announced a short period during which state employees could
retire early, before they normally would be eligible; as an incentive, the early retirees
were eligible to receive expanded benefits (in most cases, a 13 percent increase in
benefits, which they will receive for the rest of their lives).
Not surprisingly, many state workers took the
early-out option: 5,169, many more than the 3,500 originally projected. State departments
initially were not allowed to replace all of the retiring workers, and, as a result, the
Department of Management and Budget estimates an annual $50 million budget savings. The
ultimate state budget savings will depend, of course, on how many new employees are hired
to replace the retirees and the total benefits paid to those who retired early.
Within a short time, the early retirement program
reduced state employment sharply. Exhibit 4 shows the number of
early retirements by department and as a percentage of total employment in each
department. In absolute numbers, the Family Independence Agency lost the largest number of
state workers, more than 1,500. In percentage terms, the Department of Transportation lost
the most, more than 15 percent of its work force. Statewide, the more than 5,000 state
workers who took early retirement represent nearly 8 percent of the work force. Of course,
total state employment will not decline by this amount, since many workers are being
replaced. In fact, total state employment from FY 199697 to FY 199798 fell by
only 2.4 percent.
Pension System Change
After extensive debate in 1997, Michigan state government moved from a defined-benefit
pension system to a defined-contribution system.
Under the defined-benefit system, the
State of Michiganlike most governments and many private employersguaranteed
that an employee who worked a specified minimum number of years (ten
for most state employees, before the system changed) and reached a
certain age would be entitled to a specific benefit during retirement.
It was the states obligation, and therefore the state taxpayers,
to assure that there was sufficient money in the pension system to
fund these defined retirement payments.
Under a defined-contribution
system, the State of Michigan contributes a set amount each year for
each employees retirement. This annual contribution is invested
by the state at the workers direction and may be transferred
to a new employer. The state, however, does not guarantee a certain
benefit level at retirement; instead, the employee receives whatever
money has accrued in his/her account.
The states new pension system applies to
all new state employees. Existing employees were given the option of converting the
expected benefits of their existing retirement plan into a defined-contribution lump-sum
payment; they were required to make the decision by April 1998.
Some argue that the early retirement program has imposed an unacceptable drain on the
state work force. They point out that most early retirees were upper-level management
workers with many years experience and institutional knowledge. These observers are
concerned about the continued quality of government services and the effect the early
retirement program is having on the morale of the remaining workers, many of whom may have
had to take on additional responsibility.
Others view the early retirement program as an
opportunity to streamline government services. They contend that it gives state agencies
the opportunity to rethink and perhaps update their mission and reorganize to deliver
services more efficiently. In addition, the early retirement program allows mid-level
state workers who remain to move up in the system, gaining new responsibility and perhaps
bringing fresh perspective to the job.
Change in Pension Benefits
Supporters of changing from a defined-benefits to a defined-contribution system argued
that the former was no longer appropriate in todays economy or work environment.
They contend that it gave state employees who were close to being "vested" (that
is, they had put in the predetermined number of years that would make them eligible for
minimum benefits even if they left state government) or near retirement age a strong
incentive to stay at their current job, even if an opportunity arose elsewhere. They
maintain that this "golden handcuff" was not in the best interest of either
employee or state.
Proponents of the change also believe that it is
unfair to penalize employees who change jobs periodically during the course of their
career. For example, if John Doe works for eight years at each of three different jobs, he
probably is not eligible for a pension from any of them, since he did not fulfill the
usual ten-year vesting requirement with any one employer. However, if he had spent those
24 years with the same employer, he would have been eligible for a pension. This unequal
result may not have been important in the economy of 2030 years ago, when it was
common to work for a single employer for an entire career, but it no longer makes sense in
this era of labor mobility and frequent career changes.
Another argument against the defined-benefits
system was its effect on state taxpayers. Guaranteeing a specific retirement payment for
state workers means that in the event there is a shortfall in pension fund earnings, the
public at large must contribute more to fulfill the retirement obligation.
Opponents of the change argued that moving from
the defined-benefits system was a cost-cutting move that will unfairly affect people who
are dedicating their career to government service. They contend that the reward for many
years service should be the certainty of knowing what ones retirement income
Michigan Department of Management and Budget
P.O. Box 30026
Lansing, MI 48909
(517) 373-3552 FAX
Michigan State AFL-CIO
419 South Washington Square
Lansing, MI 48933
(517) 487-5213 FAX