The U.S. Postal Service (USPS) handles over 40 percent of the world’s mail volume. In 2007, it delivered 212 billion pieces of mail to over 145 million addresses. With almost 37,000 retail postal outlets and a fleet of more than 210,000 vans and trucks, revenues in 2007 were close to $75 billion. The USPS’s workforce of 786,000 employees makes it the second-largest civilian employer in the United States, after Wal-Mart. However, although this government agency enjoys a legal monopoly on the delivery of first-class mail and bars others from using its customers’ mailboxes, it has experienced increasingly stiff competition. Its monopoly power has been undercut by new forms of technology that reduce the demand for its services. In the wake of declining mail volume, it had reported a net operating loss of $5.3 billion in 2007 and it faces calls for fundamental reorganization.
Establishing The Postal Service
In 1792, the United States Postal Service became a cabinet-level department of the federal government. It established a system of post offices and post roads, using high prices for the delivery of letters to subsidize newspaper delivery and the building of additional post offices and routes in rural areas. The post office soon became the largest enterprise in the country and employed about three-quarters of all federal government civilian workers by 1830. In the early 1800s, its speed and innovative hub-and-spoke delivery system impressed many Americans. Then the arrival of steamboats and railroads brought considerable competition in the 1830s, as entrepreneurs began carrying mail between cities.
By 1845, private enterprises carried about two thirds of intercity mail. Other businesses sprang up to offer delivery of mail within cities, providing innovations, including home delivery, street corner letterboxes, and postage stamps. Some argued that the government-run post office was redundant. However, the political clout of postal employees and transportation contractors and the desire of politicians to reward supporters with patronage positions saved the post office. Congress responded in 1845 by drastically cutting postage rates and by granting the post office a monopoly on all carriage of intercity mail, forbidding private competition. In 1872, the post office further secured its monopoly position with legislation banning delivery of mail within cities by competitors.
Ending The Monopoly
The Postal Reorganization Act of 1970 replaced the cabinet-level Post Office Department with the USPS. In 1979, its monopoly on express mail was lifted and private businesses, such as United Parcel Service (UPS) and Federal Express, entered the market, easily outperforming the USPS. Simultaneously, faxes, e-mail, and other forms of electronic telecommunications developed as substitutes to traditional mail. In 2005, bulk advertising mail surpassed first-class mail (such as personal letters, postcards, and bills) in terms of total volume. From 2002 to 2006, first-class mail volume fell by about 5 percent—and volumes dropped by 7 percent for periodicals, 7.5 percent for priority mail, 8 percent for express mail, 10 percent for international mail, 22 percent for registered mail, and 35 percent for cash on deliveries (CODs).
Despite this increasingly fierce competition, rising costs have forced the USPS to substantially increase its prices. Between 1970 and 2008, the price of a first-class stamp soared from 6 cents to 42 cents—a 600 percent increase, considerably higher than the average economy-wide increase in prices of 450 percent.
Research shows that the USPS’s costs are high for two major reasons: high wages and low productivity. Although the law requires the Postal Service to maintain wage and benefits levels comparable to similar work in the private sector, its average compensation is about 40 percent above market. (This excludes unfunded liabilities of approximately $75 billion for workers compensation, pensions, and postretirement health insurance.) Moreover, rather than economize on its expensive labor, the USPS feels pressure to preserve jobs by keeping open low-volume facilities and delaying the installation of efficient new mail-handling technologies. As a result, its annual total factor productivity growth was only 0.3 percent from 1972 to 1999, before climbing to 1.5 percent per year from 2000 to 2006. These rates are far below the pace of productivity growth in the rest of the U.S. economy.
Other nations have responded to similar problems by corporatizing their post offices, turning them into free-standing corporations, whose job is to maximize profits. These corporations are given the flexibility to improve productivity, shut down unprofitable operations and lines of business, redeploy workers, implement pay-for-performance plans, borrow capital from private markets, and enter into joint ventures. Some countries have completely privatized their post offices and removed barriers to entry from competitors. These reforms have generally brought major productivity improvements and cost reductions without delivery disruptions. The major roadblock to such reforms in the United States is the political power of the USPS’s large workforce.
- Leah Platt Boustan and Robert A. Margo, Why Did Ghettos “Go Bad”?: Evidence from the U.S. Postal Service (National Bureau of Economic Research, 2007);
- Lois M. Davis, The Role of the United States Postal Service in Public Safety and Security: Implications of Relaxing the Mailbox Monopoly (RAND Corporation, 2008);
- Richard Geddes, “Policy Watch: Reform of the U.S. Postal Service,” Journal of Economic Perspectives (v.19/3, 2005);
- David M. Henkin, The Postal Age: The Emergence of Modern Communications in Nineteenth-Century America (University of Chicago Press, 2006);
- Institute for Career Research, Careers with the United States Postal Service (Institute for Career Research, 2007);
- Anthony Pajunas, Edward J. Matto, Michael Trick, and Luis F. Zuluaga, “Optimizing High Transportation at the United States Postal Service,” Interfaces (v.37/6, 2007);
- Luqman Strauther, The Mail Carrier: “Things Customers Need to Know, From Inside the Mind of a Mailman” (AuthorHouse, 2007);
- United States Postal Service, The United States Postal Service: An American History, 1775–2006 (United States Postal Service, 2007).
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