USPS Employee Compensation Costs: Continued Opportunities For Savings?

The United States Postal Service (USPS) recently released its highly-anticipated five-year strategic plan. USPS reiterated its position that costs are outpacing revenues and that it will run out of funds by 2021 if it pays all its financial obligations, and by 2024 if it continues to miss some payments.

This financial situation is no surprise to postal stakeholders. In fact, this is the reason USPS Financial Viability has been on the U.S. Government Accountability Office’s (GAO’s) High Risk List since 2009. While there are different views on how dire USPS’s financial situation is, there is little argument that employee compensation is a key driver of its costs. So long as mail is being delivered six days a week, and packages seven, a large, efficient workforce is needed to meet customer expectations.

To USPS’s credit, it took several actions over the past ten years to stem the growth in compensation costs. In fact, GAO reported three weeks ago that USPS’s compensation costs were almost $9 billion lower in 2018 than they were in 2009, when adjusted for inflation. These declines were due largely to the reduction in employees and workhours. Some of these trends have been reversing since 2016, however, so it is not clear that this savings pattern will continue.

The savings were also due to USPS offering lower starting pay, using more non-career workers, and paying a lower percentage of health premiums. GAO was able to substantiate at least $8 billion in savings from these efforts, just over the past few years alone.

GAO also identified additional potential savings if USPS could take additional actions: $2 billion a year by reducing delivery frequency, $4 billion a year if it used more non-career workers, and close to $2 billion a year if it could reduce wages by five percent. Some of these changes would require legislative action, while others would need to be negotiated with the unions.

USPS’s five-year plan was largely silent on additional efforts USPS planned to take to manage workforce costs, instead focusing on seeking legislative relief for retiree health benefit costs. There’s no question that retiree health benefit requirements need to be addressed; in fact, GAO has called upon Congress to find solutions.

However, GAO’s findings show there are savings to be achieved in other areas of compensation. We hope that USPS is continuing to work with its employees and stakeholders to explore those opportunities.

GAO has long taken the position that a balanced package of reforms is the best way to help USPS address its financial difficulties. It may well be that potential savings in this area may not offset tradeoffs, such as a decline in employee morale, service, or other incurred costs, but all cost drivers need to be studied and considered.

Fixing USPS’s finances requires tough decisions that could have consequences for mailers, employees and taxpayers. Identifying the best approaches and minimizing adverse impact on any one group of postal stakeholders deserves exploring all options.

About the Author: Lori Rectanus is Director, Physical Infrastructure Team at the U.S. Government Accountability Office.

Lori Rectanus