Postal Service Could Learn A Lot From GM

Issue Brief

Unions were created to serve an important purpose — to protect workers’ rights and safety. But in their zeal to negotiate as many benefits as possible, some may be hurting the very employees they represent.

Workers in the automobile industry have learned this lesson the hard way. Employees of the U.S. Postal Service — the third largest employer in the country — should take note: Asking for too much can sometimes turn big benefits into big layoffs.

Delphi, the nation’s largest auto-parts supplier and employer of 34,000 hourly workers, is bankrupt. It might have something to do with the fact that Delphi’s unionized workers make on average $64 per hour in wages and benefits — more than twice what some of its competitors pay. The company is offering voluntary buyouts, while GM and Ford have announced layoffs of at least 30,000 workers each.

Ford also announced this week that it is offering buyout and early retirement plans to all of its 75,000 hourly U.S. employees as a way to help shrink its workforce.

The four unions whose workers serve the U.S. Postal Service have operated under similar principles — get as much as they can for their workers. Postal employees generally earn between 20 to 30 percent more than their private-sector counterparts. Most are protected by no-layoff and no-relocation clauses.

Today, the Postal Service has accumulated over $80 billion in unfunded liabilities — mostly in the form of benefits for retirees. And the cost of health benefits continues to rise dramatically. It has shot up 36 percent — or $2 billion per year — since 2002. Rising healthcare expenditures were cited as a major reason for the recent layoffs at GM and Ford.

Within months after increasing the first-class stamp price to 39 cents in January, the Postal Service has announced plans for another rate hike next year, and regular annual increases starting in 2009.

USPS says the increase is mainly in response to rising gas prices. But its ballooning labor costs are creating a system-wide strain. If it doesn’t reverse this cost-stress, its workers could face the same fate as those in Delphi, GM and Ford.

If it acts now, USPS — and its employees — can avoid the massive cuts that have rocked auto plants from Detroit to Doraville, GA.

There is plenty the agency could do to streamline costs. If its unions allowed it more efficiently distribute labor and negotiate lower pay and benefits for new hires, cuts could be spared for current employees.

The Postal Service should also consider changing its pay structure to incorporate differences in cost-of-living — a common private sector practice. USPS wages should reflect the fact that an employee in New York City, for example, has much higher living expenses than an employee in rural New Mexico.

Postal unions must recognize that there is little choice. If they continue to block the agency from addressing its rising labor costs, postal workers will eventually be faced with the prospect of large-scale workforce reductions.

The agency has been able to push off this problem for a few years. Through attrition, it managed to reduce its workforce slightly. And productivity gains through the use of new technology offset the drop in first-class traffic for a while. But these benefits appear to have been maximized. Meanwhile, the Postal Service continues to lose business to the Internet and courier services.

In many ways, under the leadership of Postmaster General John Potter, USPS has acted like an exemplary government organization — embracing the best practices from the corporate world. Even now, it is moving aggressively to consolidate distribution centers and make them more efficient.

Postal management likes to describe their organization in corporate terms. But when it comes to trimming fat, USPS has a tendency to act like a government bureaucracy — hiking rates on its letter-monopoly customers to avoid more painful cost-cutting measures.

General Motors, Ford, and Delphi cannot solve their financial problems by simply raising prices. Clearly, such a strategy would drive consumers away at an even faster rate. Instead, they focus on becoming competitive again. That means lowering prices — while improving quality — to make their cars more attractive to buyers.

Meanwhile, their unions, having recognized their folly a little too late, are busy negotiating buyout packages and trying to arrange soft landings for the employees caught in the crossfire.

What will the Postal Service and its unions do? Face reality, lower labor costs, and hold the line on price increases? Or give in again, raise prices, lose market share, and go the way of the auto industry — if not worse — sooner than anyone expects?

Charles Guy, Ph.D., is Adjunct Fellow with the Lexington Institute and former Director, Office of Economics, Strategic Planning, U.S. Postal Service.