Postal Reform Should Reduce Cost of Postal Labor Force

Issue Brief

Labor costs have remained near 80 percent of total costs over the history of the Postal Service. Increases in the price of labor are, consequently, a crucial determinate of the Service’s financial health. The Postal Service in its recently released Transformation Plan, argues the provision for binding arbitration in current postal labor law constrains its ability to control labor costs and seeks changes in the law.

Instead, the Service suggests postal employees should be subject to private sector labor law, with unresolved disputes settled by a professional mediator. While making the postal labor force subject to private sector labor law has merit, it is far from clear that excessive labor arbitration awards are the source of the Postal Service’s financial difficulties, now or in the past. The Postal Service’s financial history makes this point abundantly clear.

During the first seven years of Postal Service operations under the Postal Reorganization Act, it accumulated a deficit of $3.7 billion dollars, despite a 100 percent increase in postage rates and a 4.2 percent increase in productivity. All Postal Service labor contracts were negotiated settlements during these years and resulted in a postal wage increase substantially above inflation in the economy. Conversely, during the 1995-98 period, the Postal Service amassed a surplus of $5.1 billion, with no increase in postage rates and declining productivity, mainly due to a beneficial labor arbitration award limiting the growth of postal wages 2 percentage points per year below that of the private sector.

This performance history suggests that postal management’s lack of consistent focus on reducing the size of its labor force and increasing productivity presents the greatest detriment to the future viability of the Postal Service. No changes in the Postal Reorganization Act or postal labor law are required for the Postal Service to begin the postal reform process by reducing the size and cost of its labor force while achieving the substantial productivity gains made possible by its large capital investments.

But if USPS is going to be given greater power to continue in its misguided drive to expand into noncore areas like e-commerce and package delivery, perhaps its labor force should also be subject to private labor laws. This would give USPS management a valuable tool to manage its biggest cost problem.

– Charles Guy, Ph.D. is the former Director, Office of Economics, Strategic Planning, U.S. Postal Service. He is currently Adjunct Fellow at the Lexington Institute.