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229 IRET Congressional Advisory 1 (2007)

handle is hein.taxfoundation/iretcgadv0226 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 2, 2007 Advisory No. 229 SEVEN GOOD YEARS OF POSTAL SERVICE PRODUCTIVITY Executive Summary The Postal Service has increased its productivity for seven years in a row. That is a record string of productivity gains for the government-owned enterprise. While productivity growth averaged a meager 0.2% yearly in the quarter century from 1975 to 1999, it quickened to an average annual pace of 1.5% in the years 2000-2006. The total cumulative productivity increase over the period 2000-2006 was more than two-and-a-half times greater than the productivity gain in the prior quarter century. The productivity measure the Postal Service emphasizes is total factor productivity (TFP), which compares output to all production inputs (labor, capital, and materials). If not for the productivity surge, the Service would require about 9% more production resources to meet its current workload. Instead of paying 41 cents for a first-class stamp, mail users would need to pay 44 or 45 cents. The overall economy would be slightly weaker, and the damage would be greater for the mailing industry and its customers. Given the danger that Postal Service productivity will revert to its old pattern, the Service's leaders are wise in making it a priority to seek additional ways to raise productivity and lower costs. The Postal Service's workers and current management deserve praise for a stellar performance compared to what is often seen at state-run enterprises and what the Service achieved in the past. But how does productivity growth at the Postal Service compare to the average in the private business sector? The Postal Service did much worse over the period 1975-1999. However, its productivity gains were approximately average compared to the private business sector during the years 2000-2005. Thus, a golden period of productivity growth at the government enterprise is entirely respectable - but not exceptional - when compared to private-sector performance. This is a reminder of the great efficiency that private businesses operating within the free market system routinely attain. If we are concerned about efficiency, which we should be, great caution should be exercised when considering the establishment of new government enterprises. They should only be authorized if they would serve a compelling public-policy need that cannot be met by the private sector. g~*I A3~ S I gg~ a Ae ~6I

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