News from the Tennessee Valley Business
SUNDAY, MAY 13, 2007

Get used to regular postage increases

Those envelopes sitting on your desk to be mailed tomorrow won’t make it to their destination. The 39-cent stamps you affixed to the top right corner are antiques now; first class mail will cost 41 cents beginning Monday.

Didn’t it just change? Yes, in January 2006 it went from 37 cents to 39 cents. Get used to it. A former director of the Postal Service’s Office of Economics and Strategic Planning said the increases are likely to become an annual event.

The ultimate regulator of price in a capitalist economy — the free market — largely is absent in the U.S. Postal Service. The result, says economist Charles Guy, who retired from the Postal Service in 2001 and now is an adjunct scholar with Lexington Institute, is a ballooning cost structure supervised by a bureaucracy with no incentive to control it.

Labor costs

Thirty-three of the 41 cents you pay for your new stamp go to labor. Any effort to control postal costs, said Guy, requires layoffs.

That shouldn’t be a problem. E-mail and the Internet have taken a bite out of first-class mail; fewer workers should be required. A private company with decreasing demand would reduce its payroll.

But this is government.

What should the Postal Service do?

“Cut costs,” said Guy. “The answer is obvious. There’s no difference between the Postal Service, General Motors, Ford or Chrysler. They’re losing market share. They either have to go out of business or get their costs under control.”

Actually, though, there is a difference.

Postal union

The Postal Service’s union contracts include provisions preventing layoffs. Any reduction in labor costs, therefore, must result either from attrition or new labor contracts. Guy said management recently agreed to another batch of contracts with the no-layoff provision, even as it cited reduced mail volume as increasing cost margins. The next opportunity to reduce the number of employees will be in three years.

“The reason they need to cut their labor force is because there is less work for them to do, less mail for them to process,” Guy said. “You have too many people doing what needs to be done. You could do it efficiently if you could get some people off your payroll. There’s no reason services should suffer at all.”


The problem, Guy said, is that the postmaster general — unlike GM’s chief executive officer — has to be sensitive to politics. Laying off government employees is difficult.

“It’s a tough political bullet,” Guy said. “The postmaster isn’t willing to take the heat. They know what needs to be done, but they lack the guts to do it.”

The Postal Service also pays the same nationally. The pay rate is reasonable for a postal employee in, say, New York City, but is inflated for regions with a lower cost of living.

“These costs are way too high,” Guy continues. “You have to find a way to get those costs down, either by having fewer people or paying them less. … You’re headed toward financial crisis. To say it’s politically unattractive is not sufficient reason not to try.”

The best solution, Guy suspects, is privatization of the Postal Service.

“Other countries are doing it, and it results in more efficient operations,” Guy said. “The quality of the service would improve. Markets work; you get there through competition. If anything, you’d end up with less expensive postage.”

In the meantime, says Guy, get used to increasing postage costs. With mail volume going down and labor costs static, annual increases will become the norm.

Contact Eric Fleischauer at

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Eric Fleischauer
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