What Does the Post Office Do in an Economic Downturn? Raise Prices!
by Amanda Griffin-Johnson Mail volume keeps dropping year after year, and yet the United State Postal Service would like to raise the price of a stamp from 44 cents to 46 cents. Why is the postal service losing money ($3.5 billion last quarter and $238 billion over the next decade) while private firms like UPS and...
by Amanda Griffin-Johnson
Mail volume keeps dropping year after year, and yet the United State Postal Service would like to raise the price of a stamp from 44 cents to 46 cents. Why is the postal service losing money ($3.5 billion last quarter and $238 billion over the next decade) while private firms like UPS and FedEx still manage to turn a profit when faced with the same economic downturn? A recent Wall Street Journal article sheds light on some possible answers:
The difference is that private companies know how to control costs. In 2009, postal service costs grew by 6% even as its revenues predictably fell. Labor costs suck up about 80 cents of every postal service dollar, so any hope of getting to break-even will require cutting the 600,000 postal work force and union benefits.
Postmaster General John Potter has done an admirable job cutting 36,000 jobs and closing some facilities. But these are band-aids. Congress is no help. Last year it let the postal service skip a $4 billion payment it was legally required to make to its pension and health-care fund, and this year it wants to forgive another $4 billion. This digs a deeper long-term fiscal hole and makes a federal bailout more likely, with unfunded retirement liabilities estimated at $90 billion, according to the Government Accountability Office. For years Congress has caved in to union demands for higher wages while impeding closure of obsolete local post offices.
This only makes the unions more militant. In an interview recently with Government Executive magazine, APWU president William Burrus laid out his negotiating strategy: “More. More control over activities at work, more money, better benefits—we want more.”
More? Today the average postal worker makes $83,000 a year in wages and benefits, roughly 50% above the average compensation for private workers, according to federal wage data. Those benefits are already so generous the post office could save $560 million a year if the mailman paid the same 28% share of employee health premiums that other federal employees pay, which is still below the norm in the private economy. Normally when a company is losing $16 billion a year in revenues, unions see the need for concessions.
Labor costs are eating up the budget, they’re skipping pension payments, and they have huge unfunded retirement liabilities? Sound like any place we know?