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USPS’s Questionable Contracts
For years, the agency has given unions what they want.


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It’s not news that the United States Postal Service is going bankrupt, but this week, the reality of the situation finally started to sink in. The New York Times reported that the agency cannot afford a $5.5 billion pension-fund payment that’s due this month.

At the core of the problem are the horrific contracts the agency has negotiated with its employees’ unions. As the Times reported:

Decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.

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Unions are a hard thing for any company to deal with — whether it’s Delta, UPS, or Boeing. And American labor law deserves some share of the blame. But employers aren’t completely helpless — which leaves us looking for other explanations for USPS’s willingness to cave to organized labor’s demands. Chief among them: The company faces little competition, has no profit motive, and has an implicit promise of a bailout from the federal government.

The current situation is self-evidently ridiculous. Since the advent of e-mail, USPS’s business has been in steep decline. Between 2007 and 2010 — long after the digital revolution took hold — mail volume fell 20 percent and the agency lost $20 billion. Overwhelmingly, the mail that remains is junk, and even Netflix, USPS’s biggest customer, is delivering more and more of its movies digitally.

You wouldn’t know any of that by the contracts USPS has signed with its unions — the National Postal Mail Handlers Union, the National Association of Letter Carriers, the American Postal Workers Union, and the National Rural Letter Carriers Association — in recent years. All four contain “no layoff or reduction in force” clauses. In May of this year, as the agency was staring into the face of bankruptcy, USPS reached an agreement with the American Postal Workers Union that would “safeguard jobs, protect retirement and health-care benefits, and provide a 3.5 percent wage increase over the life of the contract,” according to the union’s president. (He called this a “win-win.”)

It’s tempting to blame this entirely on the unions and the laws that enable their behavior. USPS workers gained the right to collectively bargain with the Postal Reorganization Act of 1970. For the most part, the act put USPS’s labor relations under the National Labor Relations Act, the law that governs union activity at most private companies. As I’ve argued elsewhere, the NLRA gives unions too much power, including the “right” to represent workers who don’t support them. In addition, while postal employees cannot strike, an arbitrator gets to impose a contract when negotiations break down. Ludicrously, arbitrators are not required to consider USPS’s financial situation when deciding which provisions to include.

Even so, employers are not helpless. In the private sector, when competition is intense and wage increases could put a company out of business, unions tend not to make much progress at all. And yet USPS contracts for the last ten years — contracts no profit-seeking company would have signed — have been made without arbitration.

A reason for this is that USPS faces very little competition. In fact, it has a federally guaranteed monopoly on the delivery of letters; it’s actually illegal to send a letter that’s not “urgent” via UPS or FedEx. Whereas most companies lose ground in the marketplace if they let their unions run wild (see: GM), the Postal Service has nothing to fear.

And further, as an “independent agency” of the federal government as opposed to a private company, USPS has no reason whatsoever to turn a profit. In fact, it’s virtually forbidden to.

For much of its history, USPS was required to be “revenue neutral.” Thanks to a 2006 law, it has a little more leeway now: In services where it competes with other providers, it can set its own prices. However, non-competitive services — for which USPS must charge the old revenue-neutral rates, plus inflation — account for about 88 percent of USPS’s revenue.

More to the point, even if USPS somehow could turn a profit, why would it bother? Private businesses try to make profits because they want more money. USPS, “independent” though it may be, belongs to the government in the end. So, USPS negotiators have no reason to play hardball when they sit down with organized labor.

One might think that even in the absence of a profit motive, USPS would have an incentive to preserve its very existence. However, companies with strong ties to the federal government seem to have an implicit bailout guarantee — see Fannie Mae and Freddie Mac. Considering that mail delivery is far more popular than those two government-sponsored enterprises ever were, it seems highly unlikely that the federal government will let the Postal Service go under.

Right now, Congress has only a few options aside from a bailout. One would be to allow USPS to stop pre-funding its retirement benefits — which is basically just borrowing from the agency’s not-so-bright future; any retirement benefits that aren’t funded while an employee is working have to be funded while the employee is retired. Another is to take measures to cut costs — the postmaster general has suggested ending Saturday delivery, closing lots of post offices, and breaking the agency’s contractual obligation not to lay off union workers. These are a good start, though the prospect of a government that breaks its own agencies’ contracts is frightening, however laughable the contracts in question are.

In the long term, however, the best solution to this problem is to end USPS entirely. Congress should eliminate the agency’s monopoly on letters and sell it to the highest bidder. Ideally, that bidder would start with a clean slate: Unions would have to win elections if they wanted to continue representing employees, and they would face an opponent that actually had something to lose.

In America’s early days, the mail was the only way to communicate over long distances, and arguably, private companies wouldn’t have served all of the nation’s rural areas. Today, affordable Internet access is available to just about everyone. The Postal Service has outlived its usefulness, and taxpayers shouldn’t be on the hook for its continued existence.

— Robert VerBruggen is an associate editor of National Review.



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