McKinsey Consultant Pete Buttigieg Was Right on USPS's High Labor Costs | Citizens Against Government Waste

McKinsey Consultant Pete Buttigieg Was Right on USPS's High Labor Costs

The WasteWatcher

For months, Democratic presidential hopeful Sen. Elizabeth Warren (D-Mass.), a reliable anti-business scold who never misses an opportunity to excoriate, well, anyone from either party who doesn’t share her anti-corporate zeal, has been hammering South Bend, Indiana Mayor Pete Buttigieg for not being sufficiently forthcoming about his post-college employment at a large consulting firm, McKinsey, in 2010.

On Tuesday, December 10, 2019 Mayor Pete Buttigieg caved in to the nags and made public his client list from those days; among them were Blue Cross-Blue Shield of Michigan, The U.S. Department of Defense, and the retail electronics giant Best Buy. 

Not very “sizzling,” quipped Pete, and he’s right, it appears to be pretty benign stuff. 

But, wait, not so fast!  A December 11, 2019 Government Executive headline reads “Buttigieg's Consulting Career Included Work on a Report Suggesting USPS Slash Career Workforce.” 

It turns out that Mayor Pete did indeed “work on” a 2010 report that McKinsey had been retained to deliver for the United States Postal Service (USPS), the focus of which was how the USPS could, gasp, cut costs and save money. 

Back in fiscal year (FY) 2010, when this “controversial” report was released, the USPS had only lost $8.5 billion.  Fast forward to FY 2019, USPS has since lost another $58 billion and the financial slide is continuing to accelerate.    

Interestingly, the 2010 McKinsey report advised the USPS to more aggressively use attrition to reduce its high labor costs and replace more expensive departing career employees with less expensive non-career employees.   That was actually sage advice.   And the USPS took it…sort of.   

In fact, a decade later, the USPS has a smaller labor force, but its labor costs have remained stubbornly high, hovering consistently at around 80 percent of its overall cost structure.  This has persisted even though USPS’s workforce has dropped from 623,000 career full-timers in 2009 to 497,000 in 2018.  The number of non-career employees has jumped from 89,000 in 2009 to 137,000 in 2018. 

One does not have to be a highly-paid public policy consultant at McKinsey to grasp that if labor is by far the USPS’s biggest cost center, it would make sense to analyze how to manage those costs better.

The report, which was more of a PowerPoint, identified a series of vague “opportunities” for cost cutting, such as when “career employees leave, replace with non-career employees up to bargaining limits,” and it suggested that the USPS should “Implement initiatives to improve workforce flexibility and leverage natural shift in employee mix due to 5 percent annual attrition rate,” and “align workforce costs with overall market trends.”  (Hardly a clarion call to “slash the workforce,” by the way.)

In fact, McKinsey (and their low-level employee Pete Buttigieg) was not only spot on about USPS’s persistent labor force problems, it turns out that the agency is plagued with the same issues a decade later.

A fresh-off-the-presses December 2, 2019 USPS Office of the Inspector General (OIG) report, entitled “A Closer Look at Postal Labor Costs” once again acknowledged that labor is a “critical area” for USPS and that, at $57 billion a year, it represented 76 percent of total costs in FY 2018. 

According to the OIG, between FYs 2009 and 2018, USPS was able to shed 14 percent in excess labor, but mail volume dropped by 17 percent in that same timeframe.  And USPS did manage to increase its (less costly) non-career labor force by 54 percent, while winnowing its (more costly) career employees by 20 percent.

But costs have skyrocketed.  According to the OIG, over the past ten years, overtime clerk and mail handler overtime jumped by almost 100 percent and rural carriers saw a 280 percent increase in overtime.  High overall labor costs have remained a key factor in the USPS’s broken business model, a conundrum that the OIG says “raises questions about current cost control efforts.”  The OIG “identified areas where additional investigation may be warranted” and throughout the report calls “further analysis,” and “further exploration, “and opines that “there is likely room for further improvement.”

One of USPS’s longstanding difficulties is that its management isn’t totally in control of the agency’s workforce.  USPS grapples with seven unions and negotiates nine collective bargaining agreements which dictate compensation, benefits, and work conditions.  In almost every negotiation over the last decade, career postal employees have extracted pay hikes, cost-of-living adjustments, and increases in health insurance benefits, even in the face of mounting financial losses and dwindling mail volume.  The system simply doesn’t give USPS the kind of flexibility that private-sector management teams have to address workforce problems. 

But what is perhaps notable about the OIG report, and the McKinsey PowerPoint from a decade ago, is that the USPS itself seems unable to accurately present a crystal-clear picture of what is happening with its most important cost center, its workforce, even after a decade of massive losses.

  The OIG, and McKinsey, and countless other oversight entities have recognized that there is something problematic occurring at the USPS.  Perhaps postal management could figure it out if they retained a really high-end consulting firm to get to the bottom of it all.    

 

List View Summary: 
As a consultant for McKinsey, Democratic presidential candidate Pete Buttigieg helped write an important report identifying high labor costs. 

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