The Michigan Civil Service Commission recently released it 32nd annual workforce report for fiscal year 2011 (FY2011).  The report shows that the Michigan state government classified workforce continues to shrink and that it currently stands at levels last seen 40 years ago in the early 1970s.  The recent update also provides insight into more current trends involving employee pay and fringe benefits as well as the state’s overall payroll.  In many respects the FY2011 data represents another data point in a consistent long-term trend.  However, the new release also shows the effects of recent decisions designed to further reduce the workforce and address escalating payroll costs.

After rising steadily throughout the 1970s and then falling slightly in the 1980s, state government classified employment levels have been trending downward since the early 1990s, with some brief periods of volatility.  The pace of decline sped up considerably during the 2000s.  Civil Service Commission data shows one of the largest year-over-year declines during the last decade occurred in FY2011.  The workforce shrank by 5.5 percent (from 50,615 employees to 47,818 employees); only the annual change in FY2002 (5.7 percent) was larger.

The sizeable contraction of the state workforce in FY2011 was mirrored by a healthy reduction in the total state payroll; the first of its kind since the early 2000s.  Overall, the aggregate state payroll (salaries and fringe benefits) fell from $4.79 billion to $4.68 billion, a 2.3 percent decline.  A decline of similar magnitude occurred in FY2003 (2.6 percent), when the workforce also fell by 5.5 percent.  Measured against the amount of total state expenditures (which also declined in FY2011), the state payroll accounted for 10.4 percent; slightly below the percentage in FY2010 and well below the recent high in FY2008 (11.1 percent of total expenditures).  As a slice of state government spending, payrolls are shrinking.

The workforce drop, and the attendant payroll decline, partially resulted from an early retirement incentive offered to state employees in late 2010.  The effects of this early retirement package are seen in the FY2011 update of the average salary figure, which declined from $54,121 to $54,048.  Older (higher paid) workers were replaced by newer employees that are paid less.

Other policies also helped control the growth of the overall payroll figure in FY2011.  For example, non-represented classified employees (about 16,000) did not receive a previously agreed-to base pay increase in FY2011 (unionized workers received a 3 percent pay hike per the collective bargaining agreements).  Also, changes in the employer/employee health insurance premium-sharing were made to require employees to pick up a larger share of the costs.  Combining the salary and fringe benefit changes reveals that average total compensation (per employee) in FY2011 only increased by 1.1 percent, well below the 4.3 percent annualized rate of growth that occurred from FY2000 to FY2010.

While state government was successful in FY2011 achieving state payroll savings through a combination of reductions in force and changes in employee compensation, these strategies are not likely to be replicated each year.  The FY2011 state workforce contraction (and savings) was largely aided by an early retirement incentive and other reductions to employee compensation, which will be difficult to reproduce frequently with the same effect.

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