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137 IRET Congressional Advisory 1 (2002)

handle is hein.taxfoundation/iretcgadv0134 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. October 7, 2002 Advisory No. 137 THE POSTAL SERVICE'S PRODUCTIVITY PROBLEM Executive Summary Current levels of productivity at the Postal Service are not high enough to justify the postal wage premium. Substantially faster increases in productivity would be hard to achieve given the constraints under which the organization now operates, but if they could be managed, they would reduce the need for reductions in compensation. While the Postal Service has become more productive over time, its productivity growth has been less than the average in the private sector. According to data from the Bureau of Labor Statistics (BLS), the Postal Service increased its labor productivity (output per hour of labor) by 40% over the period 1970 to 2000, while manufacturing and private business increased their labor productivity by 149% and 74%, respectively. The Postal Service emphasizes total factor productivity, which relates output to all factors of production. The Postal Service's total factor productivity rose by 12% from 1970 to 2000. For comparison, using the roughly similar measure of multifactor productivity compiled by BLS, manufacturing and private business increased their multifactor productivity by 39% and 31%, respectively, over the same period. A general reason why government enterprises are usually less efficient than private sector businesses is that managers in the two sectors face fundamentally different incentives. Postal productivity is further held back by constraints Congress has imposed, work rule restrictions, and adversarial labor-management relations. Under growing financial pressure, the Postal Service has recently tried harder to control costs. It has begun consolidating some of its operations and permitted attrition to reduce slightly its large workforce. Although the recent cost control efforts are commendable, the workforce reductions are modest compared to those achieved by some foreign postal services, and there is concern that Congress may block some of the agency's initiatives to lower its costs. Consequently, future postal rate increases are likely. The greatest boost to postal productivity would come from privatization. Short of that, substantial productivity gains could be made at the USPS as it is currently constituted by easing some of the legal and contractual restraints on the USPS and its management that now impede efficiency growth there. In contrast, the Postal Service should not be allowed to set its prices with less regulatory oversight or given a green light to expand into new markets because those new powers would reduce the urgency it now feels to raise efficiency by better managing costs.

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