USPS Labor Woes: A Greek Tragedy

In the myth of Sisyphus, the protagonist angers the gods so much that they condemn him to spend eternity fruitlessly rolling a weighty boulder up a steep hill.  This turns out to be an apt description of the fate of labor costs at the fiscally stressed United States Postal Service (USPS).

The USPS has a $72 billion operating budget; labor costs are $56 billion, or 78 percent of the total.  In fiscal year (FY) 2013, the USPS had 617,000 full-time employees, a reduction of 22 percent from the 796,000 in 2006.  In that seven-year period, the agency also shaved 24 percent off of the hours worked by its employees, according to a November 13, 2014 Government Accountability Office (GAO) report. The trend marks a rational response to what has become USPS’s “new normal.”  Mail volume in all classes has dropped by 26 percent since FY 2006 and USPS has been in the red for 20 of its last 22 quarters, including a loss of $23 billion in the last two and a half years and, troubling trends that are expected to continue.

In its quest to implement cost-saving measures, the USPS had begun to rely more heavily on part-time workers, whose wages and benefits are substantially lower than full-time workers.  Yet, despite the agency’s shrinking workforce, personnel costs have failed to decline and are instead expected to rise by $2 billion in FY 2015.

According to the November 13 GAO report, labor costs are rising due to higher cost-of-living allowances, enriched health benefits, and wage hikes for current employees.  Furthermore, USPS management agreed to the National Association of Letter Carriers’ (NALC) demands to convert 35,000 lower cost part-time employees to higher-cost full-time status by 2017.  The American Postal Workers Union (APWU), the largest union of USPS employees, intends to follow suit.  This is not the kind of behavior one would expect to see in a private-sector company that is essentially bankrupt.

Such a trend will only make it much harder for postal management to stem the ongoing and inevitable losses.  According to GAO, the USPS must save $20 billion annually in order to achieve break-even status by FY 2017 and Postmaster General Patrick Donahoe has stated that the agency needs to shed at least 100,000 more employees in order to bring costs under control.

In true Sisyphean fashion, caving into the union’s demands not only negate other cost-saving measures USPS has proposed (such as cutting hours at postal retail outlets and transitioning to centralized cluster box mail delivery), but enriching current employees’ wage and benefits packages also exacerbates one of the USPS’s costliest and thorniest fiscal challenges, the cost of its unfunded future liabilities for retiree health benefits, workers’ compensation, and pensions.

According to a March 13, 2014 GAO report, “…USPS has been required to prefund its pension benefit liability over decades, and … its pension liability is 94 percent funded.  Prefunding USPS’s retiree health benefits began in 2007, and the liability is about half-funded.  In contrast, USPS funds its compensation benefits on a pay-as-you-go basis, and the entire liability is unfunded. The largest unfunded liabilities, in order of decreasing size, are $48 billion for retiree health, $19 billion for pensions, and $17 billion for workers’ compensation.”

On September 30, 2014, USPS skipped, for the third time, its required $5.7 billion annual payment for retiree health benefits.  Postal management has long advocated that any postal reform proposal that Congress considers include provisions that would refund $2.5 billion in pre-funding payments USPS was has already made to its retirees’ pension and health benefit liabilities, and absolve it of having to pre-pay those obligations in the future.

The numbers just don’t add up.  Since the agency is losing an average of $2 billion per quarter, a $2.5 billion refund from its employees’ pension funds will hardly make a dent in its current fiscal mess.  Worse yet, the ongoing conversion of part-time workers to full-time workers will only aggravate a massive and growing financial obligation that the USPS already claims it is unable to meet, and increase the odds that the taxpayers will eventually be called upon to bail the agency out.

USPS’s dire fiscal state is not a mystery; on the labor front, it is now caught in a vise of its own making.  By acceding to the counterproductive and avaricious demands of its unions, postal management keeps rolling its plans for reform and cost reduction up the hill, while making the goal of financial stability an even more Sisyphean task.