Magazine | October 3, 2011, Issue

Dead Letter

Tough unions, weak management doom USPS

It’s not news that the United States Postal Service is going bankrupt, but the reality of the situation has finally started to sink in. The New York Times reported in early September 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 that USPS 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.

Unions are a hard thing for any company to deal with — firms ranging from Delta to Hyatt to Boeing have struggled with organized labor over the last several years alone. 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 the unions’ 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 Internet 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 corporate customer, is delivering more of its movies digitally.

You wouldn’t guess any of that from 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 that prevent payrolls from falling along with USPS’s business. 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.”)

All told, as of 2009 the average postal worker received $79,000 in wages and benefits, as compared with $59,000 for the average worker in the private sector as a whole. As Robert Carbaugh and Thomas Tenerelli wrote in a recent Cato Journal article, “Although these data are not adjusted for factors such as worker skill and working conditions, they suggest that the Postal Service unions have done well for their members.”

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 law put USPS’s labor relations under the National Labor Relations Act, the legislation that governs union activity at most private companies. As I argued in these pages last month (“National Labor Relations Bias,” National Review, Aug. 1), 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 may 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, it’s not as if employers have no role in the bargaining process. In fact, 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. (To be fair, talks with the National Rural Letter Carriers’ Association broke down late last year and are going to arbitration.)

#page#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. Thus, its negotiators have no reason to play hardball when they sit down with organized labor.

For much of its history, USPS was required to set rates that were revenue-neutral. Thanks to a 2006 law, it has a little more leeway now: For service categories in which 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.

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 — think 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. Even Republicans seem hesitant to suggest that course of action.

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; it’s true that other agencies don’t have this onerous requirement, but any retirement benefits that aren’t funded while an employee is working will 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 would be a good start, though the prospect of a government that breaks its own agencies’ contracts is frightening, however laughable the contracts in question are. Rep. Darrell Issa (R., Calif.) has suggested requiring older workers to retire instead, a less heavy-handed alternative. He estimates that such a measure could remove 200,000 workers from the payroll.

In the long term, however, the best solution to this problem is to end USPS entirely. Congress should sell USPS to the highest bidder and eliminate its monopoly on letter delivery. Ideally, the buyer 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 early America, the mail was the only way to communicate over long distances, and most likely, private companies wouldn’t have served all of the nation’s rural areas. In fact, the Constitution itself authorized (though it did not require) Congress to set up post offices and post roads for the purpose of facilitating mail delivery.

Today, by contrast, affordable Internet access is available to just about everyone — and we can expect Americans who prefer daily letter deliveries to pay for that service themselves, in the free market, through either existing delivery companies or a reconstituted and fully private USPS. As it currently exists, the Postal Service has outlived its usefulness, and taxpayers shouldn’t be on the hook for its steady stream of deficits and poor decisions.

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