U.S. Postal Service Should Stamp Out Its Wage Premium

For the first time ever, the U.S. Postal Service is now negotiating new contracts with all four of its unions at the same time. This is an extraordinary opportunity for USPS to get its costs under control — especially considering that stamp prices just climbed to 39 cents, and USPS has already requested another increase to 42 cents, which will probably take effect next year.

So what, exactly, is driving prices upward?


Labor is — by far — the Postal Service’s largest expense. Labor costs account for about 80% of USPS costs — compared to about 50% at private delivery companies.

That’s because unionized postal workers receive much higher wages than their private-sector counterparts.  

The USPS employs more than 676,000 bargaining unit employees, more than 99.5% of whom are covered by one of four unions — the American Postal Workers Union, the National Postal Mail Handlers Union, the National Association of Letter Carriers, and the National Rural Letter Carriers Association.

New USPS hires on average receive starting salaries around 28% above their previous earnings. In 2004, the average pay and benefits for USPS career unionized employees was $60,261.

This wage premium places an enormous strain on USPS finances. And it’s also in direct conflict with federal law stating that the pay of USPS employees should be comparable to their private sector counterparts.

Another factor contributing to the Postal Service’s high labor costs are the no-layoff provisions that protect around 89% of career employees.

The upshot of this labor premium is that USPS must continually raise stamp prices. If USPS were an ordinary business, customers would simply take their business elsewhere. But as a government agency, USPS has a legal monopoly that prohibits any other organization from delivering non-urgent letters, or even charging less than $3. So USPS customers have no choice.

But this strategy cannot work forever. If prices get too high — and USPS now plans to start hiking rates annually — customers will eventually stop using the mail altogether. That would be a disaster for USPS employees.

Union leaders need to recognize that the future of the Postal Service is anything but certain. Many other countries — including the entire European Union — are either privatizing or de-monopolizing their national posts. Innovations like e-mail and online bill-pay are rendering "snail-mail" obsolete.

If the USPS does not address its cost problems — which include more than $80 billion of unfunded liabilities — it will eventually become financially unsustainable.

Union leaders may think that Congress will simply give USPS a massive taxpayer bailout if it eventually becomes insolvent. But that’s a dangerous bet. It’s quite possible that USPS employees would instead be faced with massive workforce reductions.

In response to this reality, Postmaster General John Potter is trying to implement serious cost-cutting measures.  

But union leaders are fighting these streamlining efforts. They’re trying to protect their turf from the competition and increased efficiency that could keep stamp prices down.  

Like many private companies trying to cut costs, the Postal Service is pursuing opportunities to contract some of its services out. NALC President William Young has responded to this commonsense idea with the far-fetched claim that outsourcing to private contractors would weaken the nation against terrorism. “The threat to the quality of the mail posed by low-wage contract workers cannot be overstated,” Young said at NALC’s recent biennial convention.

But in 2004, the USPS already had 17,000 of these “Highway Contract Routes.” Contracting out local delivery can cost half as much as using federal postal employees on the same routes. USPS regional managers should be able to use more contract routes as they see fit.

The Postal Service is also considering consolidating some of its mail centers. This would entail closing superfluous mail centers and moving their labor-intensive sort-and-send functions into other extant centers. APWU President William Burrus insists that consolidation would undermine job stability, despite the Postal Service’s assurance that the plan would not eliminate any jobs, although some employees might face longer commutes.  

This stubborn resistance to any form of cost-cutting is not in the best interest of USPS employees, particularly if it ultimately results in extensive layoffs several years from now.

In November, the Postal Service’s main labor contracts expire. USPS should take this opportunity to dramatically reduce labor spending — without firing employees or slashing the pay of existing postal workers. That will require more consolidations and outsourcing — as well as a reduction of the wage premium for new hires, as opposed to existing employees.


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