By Hilary Russ

(Reuters) - State and local government employment won't return to its pre-recession peak until early 2017, following widespread public sector layoffs that have continued this year, global information company IHS Global Insight said on Monday.

Total employment by states and cities could grow 3.2 percent to 19.9 million in 2017 from 19.3 million in 2012 - an addition of 620,000 jobs, IHS Global Insight said.

Across the United States, the recession cut into property, sales and other tax revenue collections, prompting layoffs that shrank the ranks of state and local public employees from a peak of nearly 19.9 million in late 2008, IHS data showed.

"We do see that the structural imbalance in government budgets is slowly evaporating," said IHS's chief regional economist, Jim Diffley. "There can be expansion once again."

Predicted gains in employment for school teachers, firefighters, police and other public workers would come slowly, with state and local government payrolls not getting back to peak levels until the beginning of 2017, Diffley said.

The sector is expected to expand even more in the following years, to nearly 21 million by 2022, or 8.7 percent growth from 2012 levels, the report showed.

DETROIT TO FARE THE WORST

Public sector gains still would not match expected growth in private sector employment. Overall, U.S. nonfarm employment is expected to grow 8.6 percent, adding nearly 11.5 million jobs in the next five years, IHS said. The federal government is likely to lose 9.1 percent of its employees over the same time, the report found.

The professional and business services industry is expected to add the biggest number of new jobs with nearly 21 percent growth over the next five years, amounting to nearly 3.7 million jobs.

The construction industry is on track to grow 39 percent, by more than 2.1 million jobs, and the health services industry could add nearly 2.3 million more jobs, for 13.2 percent growth over the same period, IHS said.

The report was released in conjunction with a meeting of the U.S. Conference of Mayors. Philadelphia Mayor Michael Nutter, president of the conference, told Reuters in a telephone interview that "the longer-term horizon is certainly positive and looking better" for cities' ability to hire.

IHS also examined 15 metro areas around the country, including Philadelphia and surrounding areas. The region is on track for 7.3 percent total nonfarm job growth over the next five years, including 1.9 percent growth in city jobs.

"Obviously, I'm excited about the growth prospects for the city of Philadelphia," Nutter said. "But we have a lot of work to do and a long way to go."

IHS found that two areas in Texas - Laredo, as well as Dallas and surrounding Fort Worth and Arlington - are likely to have the greatest growth in state and local government payrolls over the next five years, 10.5 percent and nearly 9 percent, respectively.

Of the cities IHS studied, Detroit is expected to fare the worst for public sector hiring. It is the only metro area on track to lose even more workers, shedding just over 1,000, or 0.6 percent, by 2017. Over the next 10 years, the Detroit area is expected to add just 0.1 percent to its public payrolls.

(Reporting by Hilary Russ; Editing by David Gregorio and Dan Grebler)