NCPA - National Center for Policy Analysis

Could Better Cost Management Transform The Postal Service?

August 28, 2002

A recent "Transformation Plan" from the United States Postal Service (USPS) focuses on freeing it from constraints -- to set its own postal rates, for instance, and expand into new product lines in competition with private business -- while retaining its privileged position as a government agency.

However, economists suggest that short of privatizing the service (an option it rejects), better cost management, rather than expansion, is the best route to alleviate its financial woes. Some of those management changes would require congressional approval.

  • Postal service revenues have increased every year, but costs have grown faster, turning a $1.6 billion profit in 1996 into a $1.7 billion loss in 2001.
  • Postal service employees' wages were 28 percent higher than comparable private-sector employees in the mid-1990s, 34 percent higher after adjusting for skills and working conditions, and with fringe benefits, 42 percent higher than comparable nongovernment workers.
  • Labor costs account for three-fourths of the USPS's total operating costs; thus allowing the agency to control wage rates that are now set by federal regulations could put the service in the black.

The volume of mail and revenues from traditional postal services may be significantly reduced by electronic technology in the future. But that does it not mean the USPS has to expand in order to reach profitability, says Schuyler. In fact, some of its new ventures have worsened its situation. One recently discontinued postal product, PPosteCS, cost the service $7 million, but generated only $8,000 in new revenue.

Source: Michael Schuyler and Stephen J. Entin, "Postal Service's 'Transformation Plan': One Good Idea for Reducing Losses and Two Bad Ones," IRET Congressional Advisory No. 129, May 20, 2002, Institute for Research on the Economics of Taxation, 1730 K Street, Suite 910, Washington, D.C. 20006, (202) 463-1400.


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