Going Postal Profitable (for the employees – for a while)

The Postal Service is running out of money. The anticipated shortfall for 2011 is
$6.4 billion

The conventional wisdom that the Postal Service is the victim of the rise of email is only part of the story.
Another large part of the problem is the workers’ extricating themselves from Civil Service constraints to increase their pay and benefits. This is another example of public employees bargaining collectively with government entities to increase pay and benefits. This has made the Postal Service more constrained and less able to adapt to the changing environment and the challenge of email.

The postal operation is very labor intensive, so any increase in labor costs has a large impact on profitability.

Postal workers were able to significantly increase their pay because Postal pay exceeds Civil Service pay.

A college graduate with a B.S. degree and little experience starts in the Civil Service as a GS-5 at $29,656 per year. The median Civil Service salary is about $52,000 per year.

By contrast, starting Postal Service pay is $39,520 per year, for part time flexible mail carriers. The average pay of a postal worker in 2007 was 63,771 per year .

Postal workers were able to significantly increase their health benefit because they pay less for health insurance.

The Postal worker and the Civil Service worker both have the Federal Employee Health Benefit Program for their health insurance. The worker pays part of the insurance premium and the government pays the balance. Since the Postal worker pays a lot less for health insurance, the Postal insurance costs the government more.

For a typical health plan (Blue Cross self and family coverage), a Civil Service employee pays $431.60 per month. The balance of the insurance premium is paid by the U.S. Government as an employee benefit.

By contrast, a postal worker pays $322.18 per month. The Postal Service therefore pays over $109 per month extra as an employee benefit.

The Postal Service employs over 574,000 people. If Postal Service pay is $12,000 per year per person higher, that represents an added annual payroll cost of nearly $7 billion. The extra health insurance cost adds a burden to the Postal Service of over $750 million.

If it was not for these higher costs, not only would there not be a deficit this year but there would have been an accumulation of surpluses in previous years and the Postal Service would be on better financial footing today.

An important part of the present financial problem began in 1970 when the U. S. Post Office left the Civil Service system and morphed into the Postal Service.

After years of mismanagement and attendant labor unrest, President Nixon signed into law the Postal Reorganization Act on August 12, 1970. The Post Office Department was transformed into the United States Postal Service, an independent establishment of the executive branch of the Government of the United States. The act provided significant wage increases for postal workers.

The new Postal Service officially began operations on July 1, 1971. At that time, the Postmaster General left the Cabinet, and the Postal Service received:
1. Operational authority vested in a Board of Governors and Postal Service executive management, rather than in Congress.
2. Authority to issue public bonds to finance postal buildings and mechanization.
3. Direct collective bargaining between representatives of management and the unions.
4. A new rate-setting procedure, built around an independent Postal Rate Commission.

The Postal Reorganization Act established a postal career service, a framework that permits terms and conditions of employment to be set through collective bargaining. The Civil Service retirement program was retained.

What is happening to the postal service has often occurred in industry. The unions negotiate increasingly generous pay and benefits until the enterprise becomes too constrained to adapt to a changing environment, costs become uncompetitive and unsustainable, the enterprise collapses and the jobs vanish.

The Postal Service says they want to solve their problem by eliminating Saturday delivery. They do not seem to understand that by eliminating the service their customers cherish they are hastening the day when they become irrelevant.

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