Postal Service Delivers (For Unions)

Article Published in the Newark Star-Ledger

Brace yourself. Postal rates are about to go up again – by a whopping 7.6 percent, on average, in May. First-class stamps will cost 41 cents. Despite all the cheering over postal reform legislation signed by President Bush in December, Congress failed to address the most glaring weakness of the Postal Service – its out-of-control labor costs.

And so the cost of stamps will continue its upward spiral.

Fortunately, the Postal Service doesn’t need a second round of congressional horse-trading to solve its problem. The service is perfectly capable of restraining its labor costs without the help of Congress. But will it?

Just look at the recent contract negotiation between the Postal Service and its largest union, the American Postal Workers Union, which represents close to 300,000 workers. The union has done an excellent job of securing generous wages and benefits for members, while management has done a poor job of holding the line against these cost increases.

Postal Service employees are paid significantly more than their private-sector counterparts. In 2005, “the average annual pay and benefits for career bargaining unit employees was $62,635,” according to the Postal Service’s 2005 comprehensive statement on postal operations. Consequently, labor costs represent about 80 percent of all Postal Service expenses.

Although some union leaders deny that this wage premium exists, there are long waiting lists for postal jobs. And the quit rate of postal workers is far lower than in the private sector. In fact, the Postal Service has documented a 20 to 30 percent wage premium and presented the evidence at almost every arbitration since the 1980s.

But in the most recent negotiation, the Postal Service didn’t even try to go to arbitration with the union. It just surrendered.

The new contract contains two raises of just over 1 percent, irrespective of performance, as well as semi-annual cost-of-living adjustments. A third raise is also included in the form of a guaranteed upgrade from one pay level to the next. In addition, workers are protected from layoffs, regardless of whether there’s work for them to perform.

Management could have tried to challenge the cost increases by going to arbitration. But instead, the Postal Service decided to settle, raise prices and not aggressively confront its labor costs.

Admittedly, cost-cutting medicine is difficult to swallow. But the long-term alternative is grim. A continued decline in first-class mail volume – driven by higher prices and electronic communications – could force the Postal Service down the path of companies like GM and Chrysler, which have laid off thousands of workers.

Postal Service management is in desperate need of more labor flexibility. That includes the freedom to hire new employees at market wages – without the premium. Current employees shouldn’t fear such a measure. It might reduce union coffers over the long term, but that’s not their concern. The important thing is that it would not require a cut in wages. And it would help employees secure greater wage increases in the future.

The Postal Service pay structure should also incorporate geographical differences in the cost of living, which is common practice in the private sector. It makes a great deal of sense for wages to reflect the fact that life in New York City, for example, is much more expensive than in rural Kansas.

The Postal Service likes to think of itself as a corporate entity. But when it comes to streamlining its labor costs, it functions like a stereotypical government agency, failing to be aggressive about its future and following the path of least resistance.

The latest round of negotiations may benefit postal unions. But it doesn’t benefit the workers they represent. Clearly, many union members deserve far more than the incremental raises they’ll receive as a result of the new contract. But they’ll never get the high increases they deserve as long as they’re forced to subsidize new hires who are overpaid, or inefficient workers who can’t be laid off.

When stamp prices go up again two months from now, no one should be surprised.

Charles Guy is an adjunct fellow with the Lexington Institute and former director of the Postal Service’s Office of Economic and Strategic Planning.