U.S. Postal Service Productivity: The Yo-Yo Effect

Issue Brief

The United States Postal Service is expected to announce strong productivity growth at the end of this fiscal year-2% or more-, but don’t pop the corks on the champagne just yet. We’ve been there before. In fact, the Postal Service has enjoyed several periods of impressive productivity growth. The problem is, about one-half of these gains are usually given back in the years immediately following.

As a result, poor productivity growth is one of the most important problems facing the U.S. Postal Service. Total Factor Productivity (TFP), the Service’s most complete measure of productivity, has increased just 12% over the last three decades. During that time, productivity in the economy as a whole increased by twice this amount.

The Postal Service’s deteriorating financial condition, then, can be traced to two related management failures: the waste represented by poor productivity growth over three decades, and a parallel refusal to trim costs to offset slower than expected revenue growth. The result is accumulating losses and dire predictions for the future of the Service.

Given current postage rates, the overall productivity increase required to put the Postal Service back on an even keel financially is now in the 3-4 percent range. However, the Postal Service recently announced its preliminary productivity improvement goal for FY2002 of at least 1.0 percent, but with no indication of the upper limit. It had better be much higher than one percent, or else the cumulative failure to improve productivity in the past could to be passed on to the American people in the next rate case, which has been rumored to call for a 15 percent or higher rate increase.

— 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. Lexington Institute Adjunct Fellow Michael Paranzino contributed to this report.