Michigan Private and Public Sector Employment Levels over the Business Cycle
CRC Note 2009-01
Public sector employment, similar to private sector employment, is impacted by the ups and downs of the business cycle. A key difference between the two sectors is the respon-siveness of changes in employment levels to changes in economic activity. In general, pri-vate sector employment tends to be more sensitive to the economy, especially in a down-turn and in the short-term, while changes in public sector employment levels exhibit a delay relative to changes in the underlying business climate. To the extent that downturns in the business cycle are prolonged, the changes in public sector employment tend to mir-ror what occurs in the private sector.
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The national economy officially slipped into recession in December 2007. From December 2007 through July of this year, Michigan's total seasonally-adjusted monthly employment declined by 378,000 jobs, a loss of nine percent. Michigan, in many respects, never pulled out of the previous recession that ran from March through November 2001. Total monthly employment began declining in June 2000 and has fallen by 827,400 jobs (21 percent) since.
This paper examines changes in public employment at the state and local levels in Michigan vis-à-vis the private sector over the current recession. It looks at the employment picture during the previous recession for comparative purposes and examines changes in employ-ment, by sector, dating back to June 2000, Michigan's employment high water mark. This report looks at what may lie ahead in terms of public sector employment and the potential employment effects resulting from the Federal government's economic stimulus package. In light of both the past and future challenges facing public budgets at all levels of govern-ment, a clear understanding of public employment changes over the business cycle can be instructive.
Size of Public Sector in Michigan
While Michigan's total monthly employment picture has been on an uninterrupted down-ward trend for the past nine years, these figures paint a fairly broad picture and hide sector-specific variations that may or may not be consistent with overall trends observed in the totals. One way to break down the employment picture in Michigan is in terms of private and public sector jobs. Dividing Michigan's wage and salary workforce in such a manner is not unimportant because the public sector accounts for one of every six jobs in Michigan and is currently larger than the manufacturing sector, a historically key industry for the state.
The Michigan workforce, measured by seasonally-adjusted wage and salary employment consisted of 3,864,000 employees in July 2009 (most recent monthly data). Michigan's public sector makes up 16.6 percent of the total wage and salary employment (See Table 1). Monthly data is best for examining changes in employment over the short run, such as during a recession. In order to avoid the problems with seasonality in the job market, the monthly numbers are adjusted to remove seasonal influences which can create ambiguities.
Public sector jobs are located primarily at the state and local level across the United States and in Michigan. In Michigan, federal government employees represent only 1.4 percent of the total jobs and 8.5 percent of the public sector jobs. The "state" category used by the U.S. Department of Labor includes institutions of higher education (instructional as well as non-instructional staff). The "local" government figures include both jobs in general gov-ernmental units (e.g., county, city, villages and township) and in special purpose units (e.g., road commission, park authorities and public K-12 schools). Continue Reading this Publication