On April 12, 2018, President Trump released an executive order establishing a task force to evaluate the operations and finances of the United States Postal Service (USPS).  There are many commonsense reforms that the task force should examine that could put the USPS on a sustainable financial path and help it perform more like a private-sector business.  One such reform the task force should consider is moving the USPS towards a fairer and more efficient locality pay system for its employees.

A locality pay system addresses differences in geographic location when determining wages.  This system creates a wage scale that corresponds to costs of living in different areas of the country.  For instance, someone making $50,000 in Manhattan, Kansas would have to be compensated $130,790 in Manhattan, New York to maintain the same lifestyle.

A February 7, 2014 USPS Inspector General (IG) report detailed the consequences of not applying a locality pay system to the USPS.  According to the report, postal employees in rural areas are paid more than the market wage for jobs with comparable compensation, such as school teachers, gas pump operators, and delivery drivers.  Conversely, urban area employees are paid less than the market wage, making it difficult to retain and hire employees.  The IG compared geographic wage discrepancies between Manhattan, Kansas and Manhattan, New York.  The study found that similar jobs paid $22,450 more on average to private-sector workers in New York than those in Kansas, while the USPS only paid $3,720 more to New York postal employees.  For example, a gas pump operator makes $14,800 less annually than a postal carrier in Kansas, but $280 more than a postal carrier in New York.

Not being able to offer locality pay also presents serious efficiency issues for the USPS.  In cities, postal workers are incentivized to take non-postal jobs that pay substantially more, and USPS employees located outside cities are deterred from applying for metropolitan positions, since moving to a more expensive location makes no sense without a corresponding wage increase.  Due to its inability to offer competitively calibrated compensation, the USPS struggles to perform essential services in large urban areas.

Just as concerning for the future of the USPS is that its inability to offer locality pay makes it more difficult to adapt to turbulent economic conditions.  The IG report references Williston, North Dakota, an oil boomtown that sustained strong economic growth and increased availability of jobs.  Because of the USPS pay system, it was not able to adjust to the rapidly increasing cost of living in Williston and postal employees left the area seeking higher wages elsewhere.  In January 2018, Carbondale, Colorado faced a similar crisis when the high cost of living made it difficult for local postal facilities to retain enough employees.  While companies like Amazon can adjust by offering extra benefits to new employees, the USPS’s agency status and lack of flexibility keeps it from implementing similar policies. 

Critics argue that adopting locality pay is almost impossible for the USPS, because negotiating salaries and benefits for a global organization that services 47 percent of the world’s mail and employs over half a million employees in every locality would be too onerous.  However, private companies like UPS, Kroger, and AT&T have all successfully implemented locality pay while negotiating with their unions, whose contracts govern employees at the national and international levels as well.  In fact, unions have a strong incentive to ensure that their employees in large metropolitan areas are adequately compensated and that is why private companies have been able to successfully negotiate locality pay.  While private companies have more flexibility than public-sector entities, several federal agencies, such as the Department of Defense and the Department of Transportation, have successfully implemented locality pay.

Instituting a locality pay system for the USPS is not a revolutionary idea.  It is a tried and true system that has worked both, in the public and private sectors, emphasizing efficiency over bureaucracy and waste.  While locality pay is not a cure for all the ills currently plaguing the USPS, implementing such a system would be a solid step in the right direction.

-- Caleb Ashley