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The appropriate size of state government is a perennial hot topic at the State Capitol, with proposals to freeze or trim the number of state employees regularly surfacing. The ongoing discussion regarding state hiring freezes raises an interesting question: how many public employees are enough?

The answer depends on the level of services and the quality of infrastructure that the public desires, the public’s willingness to pay for these services and infrastructure, and the efficiency per worker that can be provided. Obviously, there is no consensus on these issues, so not surprisingly there is no consensus on the number of employees that state and local governments should have.

However, it is possible to at least gauge the number of public employees and the size of the public payroll in Minnesota relative to other states. Each year, the U.S. Census Bureau compiles information on the numbers of state and local government full-time equivalent (FTE) employees and the size of the state and local payroll in each state. The most current year for which these data are available is 2014.

Because different states provide services at different levels of government (for example, human services might be delivered at the state level in one state and at the county level in another), it is necessary to examine combined state and local government payroll and employment and order to get an “apples to apples” comparison between states. The following analysis will focus on state and local government payroll and employment in three different years, each one decade apart: 1994, 2004, and 2014. State and local payroll will be measured relative to each state’s personal income and the number of state and local FTEs will be measured relative to each state’s population.

Both in Minnesota and nationally, there has been a decline in state and local government payroll as a percent of personal income over the last two decades. Both nationally and in Minnesota, state and local payroll as a percent of personal income was over $70 per $1,000 of personal income in 1994, falling to the mid-$60s by 2004, and just under $60 by 2014.

Payroll graph

The decline in payroll as a percent of personal income has been greater in Minnesota than nationally. In 1994, Minnesota’s state and local payroll was $79.35 per thousand dollars of personal income, 7.6 percent greater than the national average ($73.72). Over the next twenty years, payroll per $1,000 of personal income in Minnesota fell by 25.0 percent. By 2014, state and local payroll in Minnesota was $59.55, one-half percent less than the national average ($59.85).

The decline in the number of state and local FTEs per 1,000 population has not been as abrupt as the decline in payroll per $1,000 of personal income. In 1994, Minnesota had 56.8 state and local FTEs per thousand population, 8.9 percent higher than the national average (52.9). From 1994 to 2004, Minnesota’s state and local FTEs per 1,000 population fell by 4.8 percent to 54.1, only slightly greater than the national average (53.9). By 2014, Minnesota state and local FTEs fell by another 4.1 percent to 51.9, again slightly higher than the national average (50.8).

A freeze in the number of state employees will likely contribute to a further decline in the number of Minnesota public employees relative to the state’s population. The Minnesota State Demographer projects that the state’s population will increase by just over six percent in the next decade. If the number of state employees is frozen while the state’s population continues to increase, the ratio of public employees to the state’s population will likely continue to decline (unless there are offsetting increases in the number of local employees, but there appears to be no reason to assume that this will occur). The likely result of a state employment freeze would be that Minnesota’s number of state and local FTEs and total state and local payroll will fall below the national average.

It should be noted that the above analysis makes no attempt to adjust for differences from state to state in terms of the demand for public services driven by climate or other factors. For example, cold northern states like Minnesota are likely to have the need for a higher level of public services such as snow plowing and roadway maintenance, resulting in a need for a greater number of public employees.

This analysis does not answer the question of how many state and local government employees are needed in Minnesota. However, it does show that Minnesota is fairly typical in relation to other states in terms of the number of state and local government employees relative to total population, the size of the state and local payroll relative to personal income, and the decline in both of these measures over time. Freezes in public hiring will accelerate this decline and likely push Minnesota below the national average.