[Postal services should be expanded for the public good, not
diminished by special interests] [[link removed]]

THE WAR AGAINST THE POSTAL SERVICE  
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Monique Morrissey
December 16, 2020
Economic Policy Institute
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_ Postal services should be expanded for the public good, not
diminished by special interests _

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WHAT THIS REPORT FINDS: The United States Postal Service is a beloved
American institution that provides an essential public service to
communities and good middle class jobs for workers. It is a model of
efficiency and responsive to changing customer needs. But the
conflicting demands made upon it by Congress and regulators put it in
a precarious financial position even before the pandemic.
Anti-government ideologues and special interests have long sought to
privatize, shrink, or hobble the Postal Service. The Trump
administration revived these efforts, spurred by the president’s
opposition to mail voting and his animus toward Amazon, a major
customer.

WHAT NEEDS TO BE DONE: The Biden administration and Congress must act
to undo the damage and allow the Postal Service to adapt to meet unmet
needs, including the revival of postal banking.

Introduction

The Postal Service is many things—among them, a public service; part
of the nation’s critical infrastructure; a regulated monopoly; a
good employer, especially for Black workers and military veterans; and
a government enterprise competing with and supplying services to
private companies.

To take advantage of network economies, the United States and other
countries shield their postal services from competition in exchange
for delivering mail to far-flung and poorer regions. Like
transportation and communications networks that are often publicly
owned or function as regulated utilities, a national service with
standardized pricing promotes commerce and guards against the
concentration of economic power.

_SOCIAL VALUE OF THE POSTAL SERVICE_

The social value of the Postal Service extends beyond the economic
benefits provided by its delivery operations. It connects family and
friends, fosters democracy, and is a key part of our emergency and
national security infrastructure. It has operated without interruption
during the COVID-19 pandemic and other national catastrophes.

Career jobs in the Postal Service are good jobs for workers without
bachelor’s degrees. Postal workers are better compensated than many
other workers with similar education, years of experience, and hours
worked. This is typical for unionized workers, workers employed by
large employers, and public-sector workers without bachelor’s
degrees. However, this advantage is shrinking as the Postal Service
increasingly relies on noncareer employees who receive meager
benefits, and there is pressure to cut benefits for career employees
as well.

_CHALLENGES FACED BY THE POSTAL SERVICE_

The Postal Service’s financial woes, exacerbated by the pandemic,
are due to a confluence of factors: a mail monopoly that is declining
in value with the rise of electronic communication; a public service
mandate to deliver to every address in the country six days a week;
caps on postal rates, borrowing limits, and other restrictions that
limit its ability to raise revenue and make necessary investments; and
an onerous requirement to rapidly prefund retiree benefits, among
other factors.

President Trump’s push to privatize the Postal Service and his
party’s antipathy toward government partly explain Republicans’
reluctance to provide the same pandemic relief to the Postal Service
as it has to airlines and other private companies facing a similar
collapse in demand. Privatization is a long-standing goal of
conservative think tanks and corporations that stand to gain from
weakening or dismantling the Postal Service. The administration has
also been motivated by the president’s animus toward Amazon, a major
Postal Service customer, and a desire to impede voting by mail.

While politics and ideology play a role in privatization efforts, the
driving force is special interests—large corporations such as United
Parcel Service, FedEx, and Pitney Bowes that seek to take advantage of
the same network and scale economies as the Postal Service to capture
an even larger share of the shipping and mail-processing markets
without shouldering the Postal Service’s public service
responsibilities. These corporations not only lobby Congress and the
Postal Regulatory Commission but also exert an unusual amount of
influence through industry advisory groups that operate behind closed
doors.

The Postal Service is restricted in its ability to enter new markets,
a restriction that benefits competitors but not consumers. In
particular, the financial services industry has an interest in
preventing the Postal Service from reviving postal banking, which
would greatly benefit unbanked and underbanked communities that
currently rely on high-cost payday lenders and other alternative
financial services.

Meanwhile, the Postal Service is being hollowed out by outsourcing and
constrained in its ability to compete in parcel delivery, with
negative effects on consumers and workers. Laws designed to prevent
government agencies from lowering labor standards by outsourcing to
low-wage companies do not apply to bulk mailers and other companies
that perform processing and transportation tasks that would otherwise
be done by the Postal Service—and receive deep discounts in
exchange. The Postal Service itself does not benefit from these
“workshare” arrangements because the cost savings are fully passed
on to the companies, many of which are competitive only because they
pay low wages. The new postmaster general, Louis DeJoy, previously
headed a logistics company that performed outsourced postal work and
engaged in illegal anti-union activities.

_POLICY RECOMMENDATIONS_

Allowing the Postal Service to fail, or speeding up the privatization
process already underway, would harm the national economy while
devastating many vulnerable households and communities, notably
homebound seniors, people in rural areas, and residents of low-income
urban neighborhoods. The corporations that stand to gain will do so
not because they are more efficient than the Postal Service, but
because they can shed public service obligations and pay their workers
less.

Public policy needs to address market concentration and low-road labor
practices in the e-commerce, shipping, and related industries. Amazon
should be regulated, not arbitrarily forced to pay four times what it
is currently paying the Postal Service for deliveries, as President
Trump has demanded. Increasing what Amazon pays for deliveries would
primarily benefit the United Parcel Service and other competitors, not
consumers, workers, small businesses, or the Postal Service itself.

The Postal Service and corporations that interact with it have
significant market power, though the Postal Service is limited in its
ability to exercise this power by the Postal Regulatory Commission.
Rather than treating the sector as if it were a competitive market and
blocking the Postal Service from entering new markets, policymakers
should focus on ensuring that the Postal Service fulfills its public
service mission in the face of changing needs and market conditions.

The Postal Service is good for communities

The benefits of a postal monopoly

Governments around the world have for centuries understood the
benefits of postal monopolies (USPS 2020d). In addition to the
competitive advantage the Postal Service has as an established
network, it has a legal monopoly on mail delivery, shielding more
lucrative delivery routes from competition to help it extend service
to less populated and poorer areas, fulfilling its universal service
obligation (USPS 2008b, 2020d). Since 1934, the Postal Service has
also had a monopoly on accessing mailboxes, a monopoly that rival
United Parcel Service (UPS) has lobbied to end (Sullivan 2019). Like
road, rail, electricity, communications, and other networks that are
often publicly owned or function as regulated utilities, a national
service with standardized pricing promotes commerce and guards against
the concentration of economic power.

The universal service obligation is a great equalizer. Though it costs
more to transport letters and packages to and from far-flung and less
populated areas, this difference is not reflected in the postage. You
can mail a letter from Kotzebue, Alaska, to Homestead, Florida, with
the same stamp you would use to mail it across the street in New York
City. Regulated pricing and uniform service also help small businesses
compete with large ones, fostering entrepreneurship and helping
counter the concentration of economic power. Though companies can
negotiate bulk discounts with the Postal Service, these are overseen
by the Postal Regulatory Commission to guard against favoritism. Many
services, such as Parcel Select Lightweight for parcels weighing under
a pound, have a uniform price regardless of sender.

The postal network is a part of the connective tissue that binds our
nation and economy. Though viewed as a service rather than physical
infrastructure like a road network, this distinction is not clear-cut.
Roads require maintenance and other services, and postal networks
require post offices, distribution centers, and other brick-and-mortar
facilities. These networks reinforce each other. Road construction and
other investments in physical infrastructure enabled the expansion of
the postal network, which in turn spurred greater investment in post
roads, distribution centers, and other infrastructure. Another
commonality between our nation’s physical infrastructure and the
Postal Service is higher per capita costs in sparsely populated areas
(Kirk 2018).

The contours of the postal monopoly have changed over time.
Restrictions on what the Postal Service and its private-sector
competitors can and cannot do have always been points of contention
(Ryan 1999). The Postal Service lost its monopoly on express mail
delivery in 1979 and has long competed with private companies in
package delivery. These activities are circumscribed, with the Postal
Service subjected to fluctuating weight and size limits on packages
over the years, for example. FedEx, a pioneer in express air delivery,
and UPS, which since its inception has focused on larger parcels,
jealously guard against what they view as encroachment by the Postal
Service.

Protecting private-sector companies against competition from the
Postal Service is often treated as an end in itself, whether or not it
serves a public purpose. In 1952, for example, Congress reduced the
Postal Service’s package weight limit to 40 pounds in a futile
effort to prop up a competing railroad-based delivery service (USPS
2020d). Generally, relaxing these limits has benefited consumers and
companies relying on home delivery. When a four-pound weight limit was
lifted in 1913 with the introduction of Parcel Post, Sears, Roebuck
catalog orders increased fivefold within a year (USPS 2008b).

While competitors try to crack the postal monopoly, they resist Postal
Service efforts to expand its competitive business. Former Postal
Service Inspector General and Board Vice Chair David C. Williams,
among others, has pointed out that the Postal Service could offer more
services to offset the fixed cost of maintaining post offices and
daily delivery (USPS OIG 2015b; HSGAC 2016; Brookings 2015b). Post
offices, for example, could offer many printing and other services
provided by FedEx Office and The UPS Store, and expand the use of
parcel delivery lockers (USPS OIG 2013). Likewise, mail carriers could
pick up and make deliveries from local stores, including groceries
(Chandler 2014).

Expanding the services offered by the Postal Service could not only
bring in revenue to offset fixed costs associated with its public
service mandate, but it could also address unmet needs. The Postal
Service could provide banking services to low-income communities
underserved by financial institutions or high-speed internet access to
rural areas. Such service expansions would require congressional
action because the Postal Accountability and Enhancement Act of 2006
(PAEA) restricts the nonpostal services the Postal Service can provide
to a limited number of grandfathered services, such as processing
passport applications, photocopying, and selling collectible stamps
(Kosar 2009; Christensen, Francis, and Hatch 2016).

The post office provides an important public service

To our country’s founders, the Postal Service’s social and civic
purpose—connecting people to each other and fostering a
well-informed citizenry—were as or more important than its economic
benefits. Though George Washington could not garner enough support for
his proposal that newspapers be delivered free of charge, the Postal
Service Act of 1792 established a uniformly low rate for newspapers,
including those critical of his fledgling government (John 2020).
Though people now get much of their news through television and the
internet, no network reaches everyone and none is as reliable as the
Postal Service, which remains critical for the delivery of official
documents, ranging from jury summons to Census surveys and mail
ballots.

The public service mandate was reaffirmed in the Postal Reorganization
Act of 1970.1
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Act transformed the Postal Service from a cabinet department into the
more independent U.S. Postal Service (USPS) and described its basic
function as providing “Postal Services that bind the Nation together
through the personal, educational, literary, and business
correspondence of the people.” It called for “prompt, reliable,
and efficient services to patrons in all areas,” regardless of the
higher cost of services to smaller communities, and specified that
“no small post office shall be closed solely for operating at a
deficit, it being the specific intent of the Congress that effective
Postal Services be insured to residents of both urban and rural
communities.”

The social value of the Postal Service extends beyond its delivery
operations. A 2010 report by the Urban Institute enumerates some of
these, including letter carriers being trained to alert emergency
services when something is amiss, post offices serving as community
hubs in rural areas, and traffic reduction as streamlined postal
delivery replaces multiple shopping trips (Pindus et al. 2010; USPS
OIG 2019a). The inscription above the old Washington Post Office, now
the Smithsonian’s National Postal Museum, reminds us that a letter
carrier is not only the “consoler of the lonely”—especially apt
in these times of social distancing—but also the “enlarger of the
common life” (Widmer 2020).

The Postal Service is a lifeline in the wake of terrorist attacks,
natural disasters, and other emergencies. It is a key part of our
emergency and national security infrastructure (Block 2020). The
Postal Service tightened safety precautions, including installing
biohazard detection systems and educating the public about bomb and
bioterrorism threats in the wake of 9/11 and anthrax attacks that
followed a month later (Davis et al. 2008). The Postal Service was
critical to reconnecting displaced persons, distributing relief funds,
and delivering medicine and other supplies in the wake of Hurricane
Katrina and other natural disasters (Katz 2015; Joy Leong Consulting
2011). Postal deliveries have continued uninterrupted during the
COVID-19 pandemic, despite the risk to workers.

_Voting by mail_

An increasing number of Americans vote by mail. In recent decades,
many states have eased rules that previously restricted mail voting to
absentee voters, and five states have switched entirely to mail voting
(MEDSL n.d.). In addition to the essential public service they provide
by delivering mail ballots, post offices could also, if permitted,
promote civic engagement through convenient voter registration
(Christensen, Francis, and Hatch 2016).

In August, President Trump openly admitted that Republicans were
holding up funding to the Postal Service in order to limit voting by
mail in the 2020 election (Blake 2020). Though he and his party
sometimes couch their opposition to mail-in voting as a concern over
fraud (Cochrane and Fuchs 2020), there is no evidence that this is a
widespread problem (Coll 2020). Republicans were highly selective in
their opposition, with Republican leaders in Florida and other swing
states actively encouraging Republican voters to use absentee ballots
despite the president’s claim that voting by mail was not secure (R.
Berman 2020). These attacks on mail voting led former President Obama,
among others, to accuse Trump of undermining the Postal Service to
disenfranchise voters (Lee and Bogage 2020).

Done right, voting by mail is the safest way to vote in a pandemic.
Even after the pandemic is over, voting by mail can increase access to
the ballot box for low-income working parents and others with
inflexible schedules, transportation barriers, health issues, and
other obstacles to voting in person. In practice, however, state laws
often restrict access to mail ballots to seniors and voters who are
out of state on Election Day, and hard-to-follow rules can lead to
large numbers of discarded ballots. These challenges are more likely
to affect core Democratic constituencies (A. Berman 2020).

Leading up to the 2020 elections, there were also serious concerns
about whether the Postal Service could handle the anticipated spike in
mail volume in a timely fashion, especially since the president’s
hand-picked postmaster general, Louis DeJoy, appeared to be sabotaging
mail voting through cost-cutting measures that slowed delivery of
requested and completed ballots (Edmondson et al. 2020; Broadwater
2020). In the end, the worst fears about mail voting did not
materialize, in part because a federal judge closely monitored
DeJoy’s actions, and in part because negative publicity prompted
voters to request and mail ballots early and use other methods,
including voting early in person and hand-delivering ballots to drop
boxes, to ensure their votes would be received in time (Epstein 2020;
Vasilogambros and Van Ness 2020; Redden 2020; Cheney 2020; Broadwater
and Fuchs 2020; Vasilogambros, Van Ness, and Levine 2020).

_Postal banking_

While some seek to dismantle the Postal Service, others seek to expand
its activities for the public good. The idea that has received the
most attention is a return to postal banking, a service that existed
in the United States from 1911 until 1967 and that currently serves
people in numerous countries including Brazil, France, Germany, India,
Italy, Japan, New Zealand, South Korea, and the United Kingdom
(Campaign for Postal Banking 2015; Christensen, Francis, and Hatch
2016).

Postal banking takes advantage of underused capacity to address unmet
needs. Law professor Mehrsa Baradaran and other advocates note that
post offices, though far fewer in number than in the past, are still
found in poor and rural communities that banks have largely abandoned
(Baradaran 2014; USPS 2020b). They already sell money orders and offer
check cashing, though many potential customers are unaware of these
options (Christensen, Francis, and Hatch 2016). Post offices could
expand these financial activities—offering savings accounts, making
small loans, and facilitating other financial transactions, on their
own or in partnership with other financial institutions, as they have
in the past.

This would especially benefit low-income Americans who lack bank
accounts or easy access to affordable financial services. The Federal
Reserve estimates that 6% of U.S. adults are “unbanked”—meaning
they do not have a checking, savings, or money market account (Federal
Reserve 2020). Another 16% are “underbanked,” people with bank
accounts who nevertheless resort to using alternative financial
services such as check cashing services, payday lenders, or pawn shops
that typically charge high fees.

Difficulties in accessing pandemic relief laid bare the challenges
facing the unbanked and underbanked. Nearly 70 million people without
access to direct deposit waited a month or longer to receive financial
aid checks from the CARES Act (Reilly 2020). Delays in receiving
pandemic relief not only increased the hardship faced by many families
hard hit by the economic crisis, but they also slowed the injection of
funds into the weak economy.

People should not be subject to fees simply to access their own money,
whether paychecks or government transfers. One option supported by
President-elect Joe Biden and Sen. Bernie Sanders (I-Vt.) would
provide bank accounts and rapid payments through the Federal Reserve
and make these easily accessible at post offices and other locations
(Biden-Sanders Unity Task Force 2020). A version of this plan,
referred to as a “digital wallet,” was introduced by Sen. Sherrod
Brown (D-Ohio) in March (Haggerty 2020).

Support for postal banking has grown. The idea gained steam when USPS
Inspector General David C. Williams issued two supportive white papers
in 2014 and 2015, noting that the average household underserved by
mainstream financial institutions spent an exorbitant $2,400 per year
on interest and fees to payday lenders and other alternative financial
services (USPS OIG 2014, 2015d). In addition to President-elect Biden
and Sens. Sanders and Brown, policymakers who have championed postal
banking include Sens. Kristen Gillibrand (D-N.Y.) and Elizabeth Warren
(D-Mass.) and Reps. Alexandria Ocasio-Cortez (D-N.Y.) and Bill
Pascrell (D-N.J.) (Pascrell 2019). A broad coalition of unions,
financial industry watchdog groups, and economic justice organizations
formed the Campaign for Postal Banking to promote the idea (Campaign
for Postal Banking 2020).

The financial services industry opposes postal banking, even though
some institutions would likely benefit. Payday lenders, not
surprisingly, are against it (Davidson 2015). But there is also
short-sighted opposition from credit unions and community bankers, who
would be natural partners (Wack and Angell 2018; Dobbs-Allsopp 2015).
Meanwhile, the Trump administration, far from taming the predatory
lending practices that postal banking would help address, worked with
the industry to weaken and delay a rule aimed at lenders who
intentionally target borrowers who will not be able to repay loans and
are trapped into paying interest indefinitely (Confessore 2019).

The financial sector’s opposition to postal banking has parallels
with its attempts to limit government involvement in setting up
retirement accounts for workers without access to 401(k)s. The Obama
administration’s MyRA accounts and state and local governments’
Secure Choice and similar accounts were shaped by the need to assuage
financial industry concerns that government could be cutting into
their business, even though the accounts were targeted at low-income
workers whom the industry did not find it worth their while to pursue
(Oakley 2017; Denmark 2015).

Skeptics have questioned whether the Postal Service could charge
enough to cover not only transaction costs, but also default and other
financial risks if its activities extend to making small loans. To put
it another way, if it is so easy for nonprofits to service the
unbanked, why are predatory payday lenders still in business?

One reason is that payday lenders are not really in the same business
as credit unions and other mainstream financial institutions that
extend credit at competitive rates to customers who face unexpected
expenses or take out loans to buy homes or cars. Rather, payday
lenders take advantage of borrowers’ poverty and financial
unsophistication to trap them in debt, forcing borrowers to repay
loans several times over in the form of high interest and fees
(Howarth, Davis, and Wolff 2017). Payday lenders do not charge
competitive rates commensurate with the risks and transaction costs
involved in lending to their customers. Rather, they often charge
different rates to similar borrowers depending on limits set by states
(Pew Charitable Trusts 2014). Since interest rates and fees charged by
payday and other predatory lenders are not kept in check by
competition, President-elect Biden, Senator Sanders, and other postal
banking supporters have called for protecting consumers from usurious
rates, in addition to supporting postal banking as a viable
alternative for consumers (Biden-Sanders Unity Task Force 2020).

The advantage the Postal Service has over credit unions and other
nonprofits is that it is a trusted national brand and a presence in
all but the smallest towns. Since maintaining a post office is, like
daily delivery, to a large extent a fixed cost, the Postal Service
does not, in offering new services, incur the same overhead expenses
that a credit union would if it opened a new branch in a small town.
And offering such services—even at a low cost and for the benefit of
the community—can serve to defray some of the post office’s fixed
overhead costs. Other fixed costs, such as the cost of developing new
products and services, can be spread over a large nationwide pool of
potential customers.

As a trusted institution with a preexisting customer base, the Postal
Service might also benefit from lower marketing costs. It does face
one disadvantage—its transaction costs could be higher than
competitors’ as it expands into new areas—but this disadvantage
could be minimized by partnering with credit unions or other financial
institutions with experience offering these services.

Postal banking is not an either-or proposition. It can be introduced
incrementally and in partnership with other nonprofit financial
institutions. Whatever the pros and cons of different approaches,
shielding for-profit providers from competition should not factor into
the discussion. The fact that the Postal Service may have a cost
advantage over other providers should not matter as long as consumers,
especially low-income consumers, benefit.

The Postal Service provides good jobs

The Postal Service is an important rung to the middle class,
especially for African Americans and military veterans. As is typical
of jobs in the public sector, which are positions of trust that often
require significant training, the pay of rank-and-file postal workers
is better than the pay of many private-sector jobs that do not require
a four-year college (bachelor’s) degree. However, this pay advantage
has been eroding.2
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Postal workers are clustered in the middle of the educational
distribution. Most have either a high school diploma (or equivalent)
or some college education. They may have an associate degree, but
typically lack a bachelor’s degree. Few postal workers are on either
end of the educational spectrum—lacking a high school diploma or
having an advanced degree. The fact that most postal workers have a
high school diploma or some college has been true since at least the
late 1970s. In 1976–1979, 22.7% of private-sector workers lacked
high school diplomas, while only 11.4% of postal workers did. However,
the private-sector workforce has become better educated, with fewer
workers lacking a high school diploma and more having a bachelor’s
or advanced degree (TABLE 1).

Postal workers look like America, but with a higher proportion of
Black workers and veterans. Postal workers are older by five years on
average and therefore have more work experience than the average
private-sector worker (all statistics refer to full-time workers).
Almost one in four postal workers is Black, double Black workers’
share of the private-sector workforce (TABLE 2), the result of a
hard-fought battle by Black activists and unions for employment and
pay parity dating back to the early days of the Postal Service (Rubio
2010). Postal workers are somewhat more likely to be male than
private-sector workers. They are almost three times as likely to be
military veterans as private-sector workers, since veterans benefit
from preferential hiring in federal jobs and have skills sought by the
Postal Service (DOL n.d.; OPM 2020b).

Career jobs in the Postal Service are good jobs for workers without
bachelor’s degrees. Workers without bachelor’s degrees are
generally paid better in government jobs than in private industry,
though the reverse is true for workers with bachelor’s or advanced
degrees (see Appendix Note and APPENDIX FIGURE A). This holds true
for postal workers, who are less likely to have bachelor’s degrees
than most government workers. There are several reasons why workers
without bachelor’s degrees are generally better paid in the public
sector, including less discrimination, a higher wage floor, greater
responsibilities, and union membership.

Postal Service jobs were not always good jobs. In the years prior to
the landmark 1970 postal workers strike, postal workers’ pay lagged
that of private-sector workers, and many postal workers were forced to
work second jobs or live in poverty (Rubio 2020). However, reforms
signed into law by President Nixon after the strike, including
granting unions the right to bargain over compensation and binding
arbitration if negotiations reach an impasse, led to better pay for
postal workers. Meanwhile, wages for many private-sector workers,
especially nonunion workers without college degrees, stagnated despite
increased productivity.

Postal Service and other government jobs often require more training
and responsibility than many private-sector jobs. Rank-and-file Postal
Service jobs require anywhere from several months to a year of
training and a range of technology skills. Many are also strenuous and
expose workers to extreme temperatures and other hazards.3
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avoid significant costs associated with recruitment, vetting, and
training, the Postal Service and other government employers try to
hire workers interested in public service careers rather than relying
on a transient workforce.

The Postal Service is highly trusted and postal workers take pride in
fulfilling their duties (Cep 2020). It has its own police force, and
the police officers and other career postal workers have more to lose
than the gig economy workers employed by FedEx and Amazon (Soper and
Black 2018). This trustworthiness allows jewelry and other high-cost
items to be shipped from businesses to homes, insured at modest cost
through the Postal Service. A RAND study found that nine in 10
Americans felt the Postal Service was more reliable than private
delivery companies, and more than half preferred having only the
Postal Service access their mailboxes (Davis et al. 2008). Over
three-fourths of respondents thought that increasing the sorting,
processing, and transportation of mail by private companies would
increase the respondents’ concerns about security breaches and
crime. The public trust in the post office is an asset that could
allow it to successfully expand services offered, for example, to
include in-home grocery delivery, as has been tested in Sweden (Bogage
2020d).

The Postal Service and other government employers have a higher wage
floor than the private sector. Many private-sector employers,
including Postal Service competitors and service providers, pay
workers poverty-level wages and benefits and misclassify workers as
“contractors” to avoid providing health and other benefits and
evade minimum wage, overtime, and other labor standards. Few full-time
postal workers without a bachelor’s degree earn below $15 per hour
(8.9%) or live in poverty (1.3%) based on the U.S. Census Bureau’s
Supplemental Poverty Measure (SPM) (Fox 2020), which, unlike the
official poverty measure, takes into account taxes, transfers, and
other factors that affect a family’s standard of living (TABLE 3).
In contrast, 38.7% of full-time private-sector workers without a
bachelor’s degree earn below $15 per hour and 6.5% live in poverty
based on the SPM.

Poverty-level wages are common in some sectors that compete with or do
work outsourced from the Postal Service. In the warehousing and
storage industry, for example, nearly half (49.3%) of full-time
workers without a bachelor’s degree earn less than $15 an hour and
8.9% live in poverty. Since poor pay and benefits force workers to
rely on government safety net programs to meet health care and other
basic needs, a low-road employment strategy makes little sense for
government employers.

There is less discrimination in the Postal Service and other
government agencies than in the private sector. In the Postal Service,
Black (non-Hispanic) and Hispanic workers are paid 6.5% and 1.9% less
than white (non-Hispanic) workers with similar education, hours
worked, and years of experience, and the difference is not
statistically significant for Hispanic workers (APPENDIX FIGURE B).
Though any pay gap is cause for concern, the gaps are much larger in
the private sector, where Black (non-Hispanic) and Hispanic workers
are paid 17.3% and 13.3% less than their white (non-Hispanic)
counterparts. Similarly, though full-time women workers face a pay gap
in the Postal Service (10.4%), it is less than half the size of the
private-sector gap (22.0%).

Finally, the Postal Service is a large employer and most of its
workers belong to unions. Large and unionized employers tend to offer
better pay and benefits than smaller and nonunion employers (BLS
2020). The Trump administration task force report on the Postal
Service that criticized the pay of Postal Service workers nonetheless
found that Postal Service compensation, including benefits, was only
13% higher than compensation at unionized UPS in 2017, based on
financial statements (Task Force 2018). The report acknowledged that
such a comparison does not account for differences in “experience,
duties, and location,” among other factors.

Even if pay is higher in the Postal Service than in the private
sector, this does not mean postal workers are overpaid. As mentioned
earlier, many private-sector employers pay poverty wages and
discriminate against workers of color and women. A regression analysis
controlling for age, education, year, and hours worked finds that
white male postal workers are paid 4.8% more than their private-sector
counterparts, or 0.3% more (not statistically significant) if also
controlling for union membership. This analysis does not account for
other differences between the two groups, including employer size and
workers’ occupations, since the Current Population Survey does not
ask about employers, and most postal workers are in occupations
exclusive to the Postal Service, based on U.S. Census occupation
codes. Though an imperfect comparison, this regression analysis
suggests that postal workers’ pay advantage, if it exists, is
primarily due to smaller pay gaps for women and workers of color.

Moreover, the Postal Service pay premium (if it exists) appears to
have shrunk since the 1970s. This is not due to increased earnings for
private-sector workers with similar education, which have stagnated.
Rather, there has been a decline in postal workers’ average earnings
from $66,437 in 1976–1979 to $59,048 in 2015–2019 (adjusted for
inflation), as the Postal Service has come under increasing pressure
to cut costs. This erosion occurred despite educational gains and an
increased emphasis on technical skills. Though postal workers receive
more generous health and retirement benefits than most private-sector
workers, these benefits have not become more generous to compensate
for declining pay. However, health cost inflation has eaten into
workers’ pay across sectors and accounts for some of the decline
(Bivens 2018).

The Postal Service increasingly relies on noncareer employees with
less job security and meager benefits. The number of career postal
workers has shrunk by 38% in the new millennium and is at its lowest
level in over half a century despite economic and population growth
(USPS 2020a). Most of the decline happened in the decade following
passage of the PAEA in 2006, which spurred the Postal Service to cut
current labor costs by over $1 billion a year (more than 21% overall)
in a futile effort to meet a requirement for rapidly prefunding
retiree health benefits (USPS OIG 2016c). Much of the cost savings
stemmed from reduced work hours, but some was achieved by replacing
career employees with noncareer employees at a rate of around 3% per
year. There is pressure to cut benefits for career employees as well.

Though corporate America is broadly supportive of efforts to weaken
unions and lower labor standards, not all corporations benefit from
attempts to force the Postal Service to cut wages and benefits. While
reducing labor costs helps large shippers such as Amazon, it puts more
pressure on unionized competitor UPS. Though unionized UPS drivers are
more productive than nonunion FedEx drivers, FedEx is able to stay in
business by paying its drivers much less (Linnane 2019).

Challenges and constraints faced by the Postal Service

The COVID-19 pandemic

Few sectors of the economy have been left unscathed by the COVID-19
pandemic. Though relief measures to help businesses, nonprofits, and
workers weather the sharp economic downturn had bipartisan support in
the first months of the pandemic, the Senate Republican majority and
the Trump administration have so far resisted providing USPS and other
essential public services with the funds they need to make up the
decline in revenue caused by the pandemic (Bogage 2020e).

The Postal Service has said it would run out of funds within 18
months, but the Trump administration and Republican-controlled Senate
have held up needed funding, including a loan that had been approved
by Congress. The Postal Service initially estimated that it would be
insolvent by the end of the fiscal year in September, but later
reported an increase in package deliveries that pushed the projected
insolvency date back (Fandos and Tankersley 2020).

The Postal Service still projects a liquidity crisis, albeit with more
uncertainty about when this will happen (Bogage 2020d). The Postal
Service estimated it would need $54 billion to make up for losses
related to the pandemic (Brennan 2020). The CARES Act, which the
president signed into law in March, increased the amount the agency
could legally borrow by $10 billion (Stuessy and Gnanarajah 2020). But
the administration, in an unprecedented power grab, held the loan
hostage as it unsuccessfully pressed the Postal Service to raise
prices on Amazon and other large shippers. Though the Postal Service
did not bow to pressure to raise rates, it did agree to provide the
administration with proprietary information about contract agreements
with its top competitive customers (Bogage 2020b).

The HEROES Act, which passed the House in May, included $25 billion to
cover the Postal Service’s short-term losses and required the
administration to release the $10 billion loan in the earlier bill
(Bogage and Dawsey 2020). However, the bill has not been taken up by
the Senate. A stand-alone bill with the same funding for the Postal
Service passed the House in August with 26 Republicans voting with the
Democratic majority, but it too stalled in the Senate (Fandos and
Cochrane 2020).

The Postal Accountability and Enhancement Act

The Postal Service’s financial challenges predated the pandemic,
which made a bad situation worse. The Postal Service, whose operations
are self-funded, had already nearly reached the legal limit on what it
can borrow before the pandemic (Christensen, Francis, and Hatch 2016;
Stuessy and Gnanarajah 2020). Therefore, in addition to immediate
pandemic relief, the USPS Board of Governors requested $25 billion to
replace an aging vehicle fleet prone to catching fire and make other
overdue investments, plus a $25 billion line of credit to cover future
shortfalls (House Committee on Oversight and Reform 2020; Lee 2020).

The Postal Service’s financial difficulties stem from incompatible
demands put upon it. USPS is mandated to be self-financing, but has
limited ability to raise prices, cut services that do not generate
sufficient revenue to cover costs, or expand into more profitable
areas. It is required by law to deliver mail to every household at
least six days a week regardless of mail volume. As a result of this
universal service obligation, a drop in volume is not matched by a
similar reduction in costs (USPS OIG 2016a). This long-standing
problem was exacerbated by the pandemic, which caused a sharp decline
in marketing mail (Bui and Sanger-Katz 2020; Marcos 2020). Though
package volume has ballooned as more people shop online, especially
during the pandemic, package delivery normally accounts for only about
a third of Postal Service revenues (PRC 2020b).

Many problems can be traced back to the Postal Accountability and
Enhancement Act of 2006, which capped postage rate increases for
first-class and bulk mail at the rate of inflation, required rapid
prefunding of retiree health benefits, limited the Postal Service’s
ability to expand into new business areas, and subjected the Postal
Service to strict borrowing limits (Kosar 2009). Hamstrung by these
constraints, the Postal Service’s capital spending has not kept pace
with depreciation and amortization, and the Postal Service has been
forced to erode its capital stock and cut services rather than invest
for the future (USPS OIG 2016c).

Many PAEA provisions were suggested years earlier by industry bodies
advising the Postal Service. As described by Postal Service scholar
Sarah F. Ryan, recommendations from various industry task forces,
committees, and conferences advising the Postal Service in the decade
before the PAEA’s passage were included in precursor bills that did
not make it into law, as well as the 2006 act itself (Ryan 1999).
These recommendations included indexing postage to a price index,
allowing customized service and pricing for large mailers, and a
narrow definition of the Postal Service’s mandate. Industry groups
also pushed the Postal Service to offer bigger discounts for processed
mail before the PAEA’s passage, sometimes resulting in revenue
losses that were greater than the cost savings achieved. The chief
congressional sponsor of the legislation that paved the way for the
PAEA, John McHugh, now chairs the Package Coalition representing
retailers and mail service providers.

Some of the damage done to the Postal Service from the PAEA may have
been unintentional. The PAEA passed with bipartisan support at a time
when mail volume was peaking, right before the onset of the Great
Recession. Though the bill was backed by Postal Service allies in
Congress and some postal unions, USPS leadership withheld support,
concerned about the high cost of prefunding retiree health benefits
(Olsen 2006).

Though they were right to worry, the prefunding provisions may not
have been a deliberate attempt to sabotage the Postal Service or make
it an appealing target for privatization. Some supporters may have had
covert motives, but the more apparent reason for rapid prefunding was
to preserve large Postal Service payments to the U.S. Treasury after
the Postal Service was found to be overpaying the Civil Service
Retirement System for pension benefits (Blom and Isaacs 2015; Hutkins
2013; Morris 2012). Since the Postal Service is an off-budget entity,
these intragovernmental payments were counted as federal revenue at a
time when deficit concerns—or deficit posturing—loomed large in
policy discussions. To postal union allies in Congress, earmarking
funds for retiree health care must have seemed an improvement over the
Postal Civil Service Retirement System Funding Reform Act of 2003,
which steered funds previously contributed to the pension plan toward
federal debt reduction and an escrow account (Kosar 2009).

_Retiree health benefits_

Rapid prefunding of retiree health benefits has been the main cause of
the Postal Service’s financial woes since passage of the PAEA. In
combination with aggressive cost-cutting, expanded package delivery
would almost have kept the Postal Service in the black were it not for
a provision in the PAEA that required the Postal Service to begin
prefunding retiree health benefits and pay down these costs within 10
years (Brennan 2019; USPS OIG 2016c). As a result, the Postal Service
has had to borrow or default on retiree benefit contributions every
year since the passage of the PAEA in 2006.

Whatever the motivations behind the retiree health benefit provisions
in the PAEA, they were arbitrarily stringent and extraordinarily
harmful. The PAEA required the Postal Service to estimate retiree
health benefits payable over the next 75 years and start paying into a
Retiree Health Benefit Fund created for this purpose. Contrary to some
accounts, the benefits of future employees were not included in the
estimated liability, only those of current or former employees, some
of whom will still be alive in 75 years. However, the measure does
include benefits employees are not yet eligible for and may never
receive.

Retiree health benefits fall into an accounting gray area. Unlike most
pension benefits, retiree health benefits are generally not protected
except to the extent that they are covered by collective bargaining
agreements. That is, employers can cancel retiree health benefits
workers are already eligible for, whereas they can only stop workers
from accruing additional pension benefits (they cannot cancel vested
benefits). In a legal sense, therefore, retiree health benefits,
unlike pension benefits, are not liabilities that extend beyond the
life of collective bargaining agreements even for union members.

Not only can retiree health benefits be reduced or eliminated, they
generally require that workers remain in their jobs until
retirement—a choice that is not always up to workers. In the case of
postal workers and other federal employees, workers who are not
employed by the Postal Service in the five years before retiring are
generally ineligible for retiree health benefits even if they are
eligible to receive pension benefits (OPM 2020a). Though the Postal
Service is a special case because it would take an act of Congress to
revoke these benefits, this offers only limited protection.

Because they are not guaranteed, retiree health benefits were
previously treated as an expense for current retirees, not a future
liability. This contrasts with traditional pension benefits, which are
generally protected by law and, in the private sector, insured by a
federal agency. In 1993, private-sector employers began including
projected retiree health benefits in liabilities, and state and local
governments followed suit in 2006 (McArdle et al. 2006). However, USPS
remains the only federal agency—in fact, the only
employer—required to treat these benefits as liabilities and prefund
them for active workers (HSGAC 2016).4
[[link removed]]

The Postal Service was required not only to prefund the benefits but
also to do so in only 10 years. Moreover, the size of the projected
liability is highly sensitive to assumptions about interest rates,
health cost inflation, and other factors (USPS OIG 2015a). It loomed
large because health costs were assumed to grow rapidly—by 7% a
year—while the fund was required to invest in low-yielding Treasury
bonds (Blom and Isaacs 2015). The required payments ranged from
$5.4–5.8 billion per year—roughly 15% of operating expenses
(author’s estimate based on Blom and Isaacs 2015 and USPS Annual
Reports for 2007–2016). The rapid paydown of these legacy costs
accounted for three-quarters of the Postal Service’s shortfall in
the 13 years after the PAEA’s passage, with much of the remainder
tied to the Great Recession and slow recovery (USPS 2020c).

Faced with unpayable expenses, the Postal Service simply stopped
paying them. In the end, USPS contributed $20.9 billion to the retiree
health fund between 2007 and 2010, including a reduced payment
authorized by Congress in 2009, before defaulting on the remaining
$33.9 billion (USPS 2019). Though the Postal Service paid no penalty,
the defaults left the impression that the Postal Service faced serious
problems even though the accounting losses were caused by Congress
trying to minimize the amount of deficit spending they authorized in
on-budget programs.

Though the rapid prepayment requirement has expired, the Postal
Service is still obliged under the PAEA to prepay retiree health
benefits rather than fund them on a pay-as-you-go basis. Because
Congress pays less attention to costs outside a 10-year budget window,
the PAEA gave the Postal Service 40 years to pay down retiree health
benefits accrued by workers after the law’s passage. After emerging
from the 10-year rapid prepayment period, amortization payments to pay
down legacy costs, spread over 40 years, fell to under $1 billion per
year, though this is in addition to payments covering the cost of
newly accrued benefits.

Since the Postal Service has been tapping the fund it built up, it is
not currently being squeezed by these payments. However, its actions
remain in violation of the PAEA and the defaulted amounts remain on
the books as accounts receivable. Meanwhile, the Postal Service’s
reputation has unfairly suffered, and deficits that were entirely due
to the retiree health provisions are still held up as evidence that
the post office is on an unsustainable course. The _New York Times_,
for example, recently reported that the Postal Service “has
struggled economically for years” without providing necessary
context (Tompkins 2020). Rapid prefunding of retiree health benefits
has also contributed to the perception that Postal Service labor costs
are high (USPS 2016c).

_Postage rate caps_

Another challenge facing the Postal Service is its limited ability to
raise postage rates in response to declining volume of paper mail. The
PAEA capped rate increases for most types of letter mail to changes in
the consumer price index (CPI), allowing the Postal Regulatory
Commission to approve increases above inflation only in
“extraordinary or exceptional circumstances” (Kosar 2009;
Christensen, Francis, and Hatch 2016). Unfortunately, the PAEA
coincided with a peak in mail volume (USPS 2020b). Mail subject to the
CPI cap has declined by over 50% since its passage (PRC 2018, 2020b).
The price cap has generally been binding, though postage rates were
temporarily raised above inflation in the wake of the Great Recession.
After a 10-year review of inflation-indexing, the Commission asked for
more flexibility to increase rates, but the proposed changes have yet
to be approved (PRC 2017).

There is no reason to expect the price of postage to increase in
lockstep with inflation. The CPI is a weighted average of price
increases for a range of goods and services, with weights based on how
much the average consumer spends on each category. Most prices rise
either more slowly or more quickly than the index at any given time,
with flat or declining costs in apparel and computing (for example)
partly offsetting the rapidly rising costs of medical care and college
tuition.

A service with high fixed costs and declining volume will generally
have faster-than-average price increases. This problem with the PAEA
price cap was identified early on but never addressed by Congress
(Kosar 2009). First-class and marketing mail volume have declined as
people have switched to other forms of communication and methods of
bill-paying, even while the number of mailing addresses has continued
to climb. Because of this and other factors that a postal service
cannot control, most countries do not cap postage rate increases
without some wiggle room (USPS OIG 2017a). Due in part to the U.S.
Postal Service’s strict price cap, the cost of a first-class stamp
is now considerably lower in the U.S. than in most other
industrialized countries (USPS 2020c).

_Constraints on competitive services_

The Postal Service has partly made up for the decline in letter mail
with an increase in parcel delivery. The PAEA distinguished between
“market-dominant” services (mostly first-class and bulk
mail)—where the Postal Service either maintains a monopoly to help
it comply with its uniform service obligation or has a dominant market
position—and “competitive” services (mostly parcel shipping),
where it competes with private-sector companies. Shipping volume has
more than tripled while market-dominant mail volume has declined by a
third since the PAEA’s passage (TABLE 4).

Though some of the shift from the market-dominant to the competitive
category reflects reclassification—commercial lightweight parcels,
for example, were switched from market-dominant to competitive
(Hutkins 2015)—it is largely due to electronic communication
replacing some forms of paper mail as well as e-commerce replacing
brick-and-mortar stores.

It is worth noting, however, that while some types of paper mail are
on the decline (due to electronic bill paying, for example; see USPS
OIG 2015f), marketing mail has expanded—as has the clout of the bulk
mail industry. Since mail volume is declining but still accounts for
most of the Postal Service’s business, the rapid increase in
shipping has not offset the slower decline in mail.

Revenue per letter or parcel handled has also fallen as the Postal
Service has engaged in more outsourcing and specialization. Whereas in
the past the Postal Service and other delivery services might have
participated in every stage of the process, they now share tasks with
other companies—a process Brandeis professor David Weil has dubbed
“fissuring” (Weil 2017).

The Postal Service offers discounts for mail that is processed or
transported closer to its destination. It also offers “last-mile”
delivery services to e-commerce and shipping companies, where the
Postal Service is involved only in the last stage of the process. As a
result, mail volume is not a consistent measure of the amount of work
being performed in-house by the Postal Service. The size and weight of
parcels, delivery time, and distance traveled are also not captured by
simple volume measures. In combination with declining mail volume,
fissuring and other factors have caused Postal Service revenue to drop
by a quarter since 2007 despite the rapid increase in parcel volume.

Parcel delivery and other competitive services are regulated under the
PAEA, though the Postal Service has more flexibility in setting rates
for these services than for first-class and bulk mail. The PAEA
requires that the price of competitive services include an amount to
cover some of the Postal Service’s overhead. Though not as strict as
the price cap on market-dominant services, this requirement (a price
floor, not a ceiling) still limits the Postal Service’s pricing
flexibility. Left to its own devices, the Postal Service might opt for
lower prices to increase revenue from some competitive services if
demand for these services is price sensitive. On average, however,
package delivery and other competitive services contribute
significantly more toward overhead costs than the minimum required.

Special interests and the push for privatization

Not surprisingly, corporations lobby to tighten or loosen constraints
on the Postal Service in ways favorable to their business models. This
often puts Postal Service competitors and customers at odds with each
other, as competitors try to raise Postal Service costs and prices and
customers try to lower them. The two groups are also at odds in
lobbying for or against changes to delivery standards, such as ending
Saturday delivery. Complicating matters, alliances shift as customers
such as Amazon are also increasingly competitors, and competitors such
as UPS are also increasingly customers.

Special interest angles are not always self-evident. For example, the
bulk mail industry aligns with package delivery companies, but not
retailers, in favor of higher Postal Service shipping rates so that
competitive services bear more of the Postal Service’s overhead
costs. UPS and other delivery companies have long accused the Postal
Service of using its mail monopoly to cross-subsidize its package
delivery business, a charge that has repeatedly been found to lack
merit by the Postal Regulatory Commission. As will be discussed below,
there is no single “right price” for delivery services when there
are fixed network costs—and prices should be set to benefit
consumers, not protect rivals.

Though UPS wants the Postal Service to charge retailers higher
shipping rates, UPS itself takes advantage of the Postal Service’s
last-mile delivery services. Meanwhile, the Package Coalition, which
represents Amazon and other retailers, favors lower shipping costs and
disputes UPS’s claim that the Postal Service has an unfair advantage
over private competitors. The Package Coalition and another lobbying
group, the Coalition for a 21st Century Postal Service, share some
members—including Amazon, eBay, and Pitney Bowes—but the latter
includes mail-processing, paper, and printing companies that push for
larger “worksharing” discounts for bulk mail that has been
processed or transported closer to its destination—discounts that do
not benefit parcel shippers. Shifting interests and alliances further
complicate the picture.

Postage and shipping rates are not the only prices under contention.
The Postal Regulatory Commission also regulates prices and discounts
for mail-processing and related industries, such as commissions paid
to postage vendors and workshare discounts. Pitney Bowes, which
pioneered the first commercial postage meter in 1920, remains a major
player among these “workshare partners” of the Postal Service
(USPS OIG 2019b). While less visible than e-commerce and delivery
companies’ interactions with the Postal Service, direct mail
printers, mail service providers, and logistics companies also stand
to gain or lose immensely, depending on the extent to which the Postal
Service’s activities are privatized or open to competition as well
as on the size of discounts provided for mail that has been presorted
or “drop-shipped.”

Some Postal Service leaders have actively supported these efforts. In
1988, Postmaster General Anthony Frank established a joint worksharing
task force with industry members representing mass mailers and mail
service providers (National Postal Museum n.d.). The task force led to
changes that incentivized companies to do more of the work previously
done by the post office—a form of back-door privatization.

Hollowing out the Postal Service through outsourcing

It is a mistake to think of privatization as an all-or-nothing
proposition. Privatization of government functions can occur through
divestment, contracting out of tasks, or attrition. It can occur
gradually or suddenly. And it can happen through lawmakers’
concerted efforts or by haphazard deregulation and private-sector
encroachment. The German government, for example, sold its postal
service to the private sector in stages, an example that served as a
model for a Trump administration task force (Task Force 2018). In the
United States, President George W. Bush sought to divert a portion of
Social Security contributions into privately managed investment
accounts. While overt attempts to privatize popular programs such as
the U.S. Postal Service and Social Security have met with fierce
resistance, back-door privatization achieved by hobbling government
services and encouraging outsourcing to the private sector has
occurred with less public awareness and often with bipartisan support.

Outsourcing sometimes takes the form of direct contracting out of
Postal Service tasks, despite strong resistance from postal unions.
Unions have won important battles in this ongoing war, blocking
attempts to expand the use of contracted delivery service carriers on
specified routes and an effort by office supply store Staples to open
postal counters (Kosar 2012; Vail 2017).

Often, however, outsourcing takes the less visible form of discounts
that incentivize companies to perform tasks that would otherwise be
performed by the Postal Service. Companies receiving these workshare
discounts may perform the work themselves or hire third-party
contractors to do it. From a purely economic standpoint, it matters
little whether the Postal Service is directly paying contractors to
transport mail, say, or offering discounts for mail that has been
transported closer to its destination. However, there are legal and
other implications of outsourcing that takes the form of customer
discounts.

Outsourcing has grown rapidly since worksharing discounts were first
introduced in the late 1970s. By 2008, 80% of mail was covered by
these arrangements, according to a report by the USPS Office of the
Inspector General (USPS OIG 2010). The report found that workshare
discounts for companies that presorted or drop-shipped mail were a
wash for the Postal Service, which provided $15.0 billion worth of
discounts to workshare partners for $14.8 billion in cost savings to
the Postal Service in 2008. This was by design, since the Postal
Service aims to rebate all cost savings to the companies doing
outsourced work based on the principle of “efficient component
pricing,” according to which workshare discounts are supposed to be
set equal to avoided costs.

Outsourcing “upstream” work therefore does not benefit the Postal
Service nor does it support its public service mandate. As Evergreen
State College professor Sarah F. Ryan pointed out in her 1999
master’s thesis, what drives outsourcing is not the Postal
Service’s desire to save money, as might be expected, but rather
behind-the-scenes lobbying by corporations (Ryan 1999). Many of these
corporations are military contractors and others adept at using past
employment experience and contacts at government agencies to profit
from government outsourcing.

Safeguards against conflicts of interest have proven ineffective. The
Postal Service Board has long been dominated by corporate executives.
However, its members are not supposed to have a direct financial
interest in the mailing industry (a rule the current postmaster
general appeared to be violating before belatedly selling his interest
in his former employer; see Cohen 2020 and Durkee 2020). Instead,
corporations’ primary influence channel, aside from lobbying
Congress and the Postal Regulatory Commission, is through industry
task forces and advisory committees set up by the Postal Service
(_Post & Parcel_ 2001; HSGAC 2007). Postal Service unions have tried
to make industry-dominated advisory bodies more inclusive and
transparent, with little success.

Even if it does not benefit the Postal Service, is outsourcing
efficient from a societal point of view? Some division of labor in the
mailing industry, such as the Postal Service offering last-mile
delivery to other shippers, takes advantage of underused capacity and
economies of scale. This is efficient and clearly benefits consumers,
though regulatory oversight is required to ensure that large companies
such as Amazon do not unduly benefit. Similarly, presorting and
bar-coding addresses before mail is printed and dropped off is more
efficient than doing it after the fact.

Much outsourcing, however, is driven by differences in hourly labor
costs rather than productivity. Low-wage companies engaged in mail
processing, transportation, and related tasks generally have lower
labor productivity than the Postal Service and other unionized
employers because they rely on a less skilled and more transient
workforce and have less incentive to invest in training or technology.

Outsourcing creates administrative and other headaches for the Postal
Service. The inspector general and others have noted that even if cost
savings are rebated on average to companies, discounts are difficult
to price correctly and are often more or less than savings achieved,
distorting incentives. Quality control is also an issue. Outsourcing
incentivizes what economists call rent-seeking behavior by
corporations—effort expended on gaming the system rather than
engaging in productive activities. As the inspector general’s report
notes, “Worksharing represents a financial incentive for mailers and
MSPs [mail service providers] to influence the postal policy debate.
Not surprisingly, there have been controversies over the size of
workshare discounts, how they are calculated, and how broadly they are
applied” (USPS OIG 2010, 8).

If the Postal Service does not directly benefit from outsourcing
tasks, who does? Outsourcing to low-wage companies means corporate
shareholders benefit at the expense of workers. And whether bulk
mailers perform the work themselves or use mail service providers,
they benefit from lower costs. The extent to which these cost savings
are passed on to consumers, however, depends on the competitiveness of
the industry and the sensitivity of consumer demand to price changes.
Since the mailing industry is increasingly concentrated, much of the
benefit accrues to corporate shareholders, not consumers, especially
if these companies negotiate preferential rates at the expense of
other mail customers (Ryan 1999). In any case, the benefit to
consumers of marketing mail is indirect, since much of it is designed
to capture market share without necessarily leading to price or
quality improvements.

Competitive pressure that normally leads to lower consumer prices is
also blunted by the structure of outsourcing discounts. As the
inspector general’s report notes, outsourcing may be lucrative even
for inefficient companies because the Postal Service is required to
give the same discount to all mail service providers rather than going
through a competitive bidding process or setting the discount to
maximize the cost savings to the Postal Service (USPS OIG 2010). As a
result, work may be profitably performed by any company with lower
costs than the Postal Service, not necessarily the most efficient
company.

Limiting the Postal Service’s ability to compete in parcel delivery

The apportionment of fixed costs is another contested area, with UPS
and others arguing that the Postal Service is engaging in unfair
competition by subsidizing parcel delivery and other competitive
services. While the hollowing out of the Postal Service through
workshare discounts has happened under the radar, there has been a
heated public debate around the pricing of competitive services.

Following the passage of the PAEA, which distinguished between
market-dominant and competitive services, the Postal Regulatory
Commission required that the price of competitive services include at
least 5.5% toward “institutional costs.” When the Commission
increased the institutional cost contribution requirement to 8.8% in
2019, Amazon (which is mostly a customer) predictably argued that this
was too high, and UPS (which is mostly a competitor) predictably
argued that this was still too low (PRC 2020a; Steiner 2019).

In practice, the institutional cost contribution requirement sets a
price floor for competitive products, but prices are often
significantly above this floor. The Postal Service sets rates above
the floor when this helps its bottom line—that is, when the negative
effect of reduced demand is more than offset by the positive effect of
a higher price. In 2019, revenue from competitive products was $24.2
billion, of which $8.2 billion (34.1%) went toward institutional costs
(PRC 2020b). The issue worth debating is not whether low Postal
Service shipping rates hurt industry profits, but whether high
shipping rates serve the public interest.

President Trump sided with the Postal Service’s competitors in
calling for higher prices for competitive services—at least when
Amazon is the customer. President Trump made no secret of his dislike
of Amazon CEO Jeff Bezos, who owns the _Washington Post_, which has
been critical of the Trump administration. In 2017 and again in 2018,
Trump accused Amazon publicly of having a sweetheart deal with the
Postal Service (DePillis 2017; Trump 2017, 2018). He also reportedly
lobbied the postmaster general privately (Paletta and Dawsey 2018).

Though one of the Postal Service’s largest customers, Amazon is
rapidly expanding its in-house delivery network. By one estimate, the
Postal Service delivered 31% of Amazon packages in July 2019, down
from 60% just two and a half years earlier (Premack 2019). According
to USPS financial disclosures, Amazon and two other unnamed customers
(one of them presumed to be eBay) accounted for 8.5% of Postal Service
revenues in 2019 (USPS 2019; Dawson 2019). Though Amazon is likely the
Postal Service’s largest customer among retailers, UPS and
FedEx—which use the Postal Service for last-mile delivery—may be
as or more important to the Postal Service’s bottom line. As Amazon
expands its own delivery network, its arrangements with the Postal
Service may matter less to UPS and FedEx than the fact that the
company that already dominates e-commerce is trying to do the same for
delivery (Cheng 2019).

Not satisfied by the recent increase in the institutional cost
contribution requirement, Trump demanded that the Postal Service
quadruple what it charges Amazon for last-mile delivery as a condition
of receiving pandemic relief. The president’s claim that Amazon has
an unfair advantage appears to be based on an estimate of the “true
economic cost” of shipping in a Citigroup brief (Ward 2020). This
estimate, however, relies on the false assumption that the Postal
Service’s competitive services contribute only the minimum required
by law toward overhead, as Josh Barro of _Business Insider_ notes
(Wetherbee et al. 2017; Barro 2018). According to Barro, the Citigroup
brief also relies on UPS-funded research that includes legacy costs
associated with past employment in measures that should only include
current costs (Neels 2015). Moreover, the UPS analysis ignores how
demand for services would be affected by rate hikes, as the Postal
Regulatory Commission’s lawyers successfully argued in federal court
in _United Parcel Service v. Postal Regulatory Commission_. UPS
appealed the court’s decision as far as the Supreme Court, which
declined to take the case (Stohr 2019).

There is no single “right price” for last-mile delivery. The
Postal Service makes money on this mutually beneficial service since
it delivers to all homes and businesses regardless and the cost of
delivering an extra package is less than the Postal Service charges
for these deliveries. Meanwhile, it would cost UPS, FedEx, and Amazon
more to do last-mile delivery of a package if they had to make a
special trip to do so. (This symbiotic relationship goes both ways:
The Postal Service also contracts with UPS and FedEx for air
transportation. See USPS OIG 2015b.)

The challenge in determining a fair price for Amazon and other large
e-commerce, shipping, and processing companies is that there is not a
textbook competitive market on either side of the transaction. There
are network fixed costs in delivery services that give established
actors an advantage against would-be competitors, which is why Amazon,
UPS, and FedEx should be regulated as quasi-monopolies and why we
should take with a grain of salt suggestions that the Postal Service,
a monopoly that is heavily regulated, is not nimble enough to be
competitive (Slentz and McCann 2009).

Both sides in the Postal Service’s last-mile arrangements with
shippers are better off engaging in the transaction across a range of
prices, so that the distribution of spoils is determined through
negotiation. Economists model situations like this using game theory,
as opposed to pinpointing a single competitive price at the
intersection of supply and demand curves (USPS OIG 2017b). The
“game” in this case is complicated by the actions of other
competitors and suppliers, dynamic considerations, and sunk costs. For
example, shippers like Amazon can build out their own delivery
networks. In such circumstances, raising rates could benefit the
Postal Service in the short run but hurt it in the long run by
incentivizing Amazon to expand its delivery network, especially in
high-density areas (Premack 2020).

Ideology and special interests: The role of pro-privatization think
tanks

Companies that stand to gain by hobbling or shrinking the Postal
Service support pro-privatization think tanks. Think tank veterans
active in these efforts have served in, or acted as outside advisors
to, Republican administrations. Though some Democrats have supported
privatization, these efforts are more aligned with the GOP’s
limited-government stance and its alliance with big business, two
interests that often overlap.

The Cato Institute, the Heritage Foundation, and the Reason Foundation
are among the libertarian and conservative think tanks that have
pushed to privatize the post office and other government entities.
FedEx CEO Frederick W. Smith served on the board of the Cato
Institute, which has spent decades pushing for Postal Service
privatization (Smith 1999; Hudgins 2000; Edwards 2016). Advocates of
Postal Service privatization at the Cato Institute and the Heritage
Foundation, including Peter J. Ferrara and Stuart M. Butler, were also
architects of a high-profile effort to privatize Social Security
(Ferrara 1980, 1999; Butler 1985; Butler and Germanis 1983). Another
proponent, Robert Poole of the libertarian Reason Foundation,
encouraged President Reagan to pursue privatization of the post office
and other federal agencies, which led to the appointment of a
privatization commission (Poole 2004). Decades later, President Trump
nominated the commission’s research director, Stephen Moore—who
had also served stints at Cato and Heritage—for a position on the
Federal Reserve Board (Cato n.d.; Moore 1988).

Centrist think tanks have also weighed in. Robert J. Shapiro, a
Clinton administration veteran and author of a UPS-funded 2015 report
claiming that the Postal Service had an unfair advantage over
competitors (Shapiro 2015), participated in a panel discussion at the
Brookings Institution (Brookings 2015c), which received funding from
UPS (Brookings 2015a). His findings were the basis of a misleading
essay by co-panelist Elaine Kamarck of Brookings, who used Shapiro’s
report to argue in favor of privatizing Postal Service parcel delivery
operations (Kamarck 2015; Anderson 2015). Kamarck, who led the Clinton
administration’s “reinventing government” initiative, had
previously written that the Postal Service should either become more
entrepreneurial and expand into new lines of business (which it is
prohibited from doing under current law) or should be fully dismantled
and privatized (Kamarck 2009).

Pitney Bowes was an early supporter of privatization efforts. Along
with FedEx CEO Frederick Smith, former Pitney Bowes CEO Michael
Critelli participated in a 1999 Cato conference on Social Security
privatization, though Critelli was more circumspect in his remarks
than Smith (Cato 1999). In 2013, Pitney Bowes funded a National
Academy of Public Administration panel looking into privatizing many
of the Postal Service’s upstream operations (Keane 2013). The panel
was led by former Comptroller General and Postal Service critic David
M. Walker, a long-standing supporter of privatization (GAO 2001;
Walker 2013). Despite the company’s obvious financial interest in
the issue and Walker’s background, the panel was billed as an
“independent review” of an earlier “thought-leader” proposal
by, among others, Edward L. Hudgins, the author and editor of two Cato
books on Postal Service privatization (NAPA 2013; Hudgins 1996, 2000).
Pitney Bowes now belongs to the Coalition for a 21st Century Postal
Service, which officially opposes privatization efforts but supports
“postal reform” (C21 2018).

Trump-era assaults on the Postal Service

_Office of Management and Budget report_

Like some earlier Republican administrations, the Trump administration
flirted with overt privatization. A 2018 Trump Office of Management
and Budget (OMB) report proposes returning USPS to profitability in
order to sell it off (OMB 2018). The report claims that a
“privatized Postal Service would have a substantially lower cost
structure, be able to adapt to changing customer needs and make
business decisions free from political interference, and have access
to private capital markets to fund operational improvements without
burdening taxpayers.” The report assures readers that “the United
States could privatize its postal operator while maintaining strong
regulatory oversight to ensure fair competition and reasonable prices
for customers.”

The OMB report blames politics for the Postal Service’s woes,
without explaining how a privatized service would be free of such
interference. Rather than magically transforming “political
interference” into “strong regulatory oversight,” as the report
promises, Postal Service privatization would more likely simply add
another special interest to the lobbying mix. Currently, unlike its
rivals, the Postal Service is not allowed to engage in lobbying or
make political donations—but a privatized postal service could
(Fisch 2005; Jacobson 2001). (A similar strategy of exacerbating a
problem under the guise of paving the way for a solution was seen in
the administration’s starving the Postal Service of funds while
promising that privatization would provide access to needed investment
capital.)

The OMB report proposed significant cuts to customer service and
workers’ compensation. It called for delivering mail fewer days per
week to more central locations, rather than six-day-a-week door
delivery to all addresses, and emulating “private sector practices
in compensation and labor relations”—among other things, by ending
workers’ participation in federal benefit programs. It also
suggested offloading accrued pension liabilities onto taxpayers to
make the Postal Service a more appealing target for would-be buyers.
In short, the report did little to hide the fact that privatization
would lead to a massive transfer of wealth from rural residents, small
customers, taxpayers, and workers to corporate shareholders.

_Treasury-led task force_

A later Trump administration task force appointed to study the Postal
Service’s business model deemphasized privatization while filling in
the details of the OMB’s proposed service and compensation cuts.
That task force, headed by Treasury Secretary Steven Mnuchin, called
for stripping postal employees of their right to collectively bargain
over pay and benefits while preserving a role for a downsized public
postal service (Task Force 2018). Whether the task force was more
politically realistic or more cagey about privatization than the
authors of the OMB report is an open question. The administration may
have become aware that overt privatization faced serious opposition,
even from segments of the Republican Party base. Or it may simply have
come to the realization that advertising a strategy of cutting
services and workers’ pay to pave the way for privatization was not
politically smart.

The Treasury-led task force called for adopting a more targeted
business model based on providing “essential mail and package
services for which there is no cost effective, nationwide, private
sector substitute.” It proposed elevating the private sector to a
central role while limiting the Postal Service to “correcting the
failures and inefficiencies” of private markets in order to meet the
needs of “customers who are not reasonably served by commercially
available products.” While recognizing a limited need for government
involvement to provide “a safety net of necessary postal
services,” the task force declared that “the Postal Service’s
role in promoting national cohesion has diminished,” paving the way
for the private sector to take over more of its upstream operations.

The task force’s rationale for elevating the private sector’s role
borrowed terms used by economists but was not based on rigorous
economic theory. Echoing libertarian arguments long used to promote
the privatization of government functions, the task force framed the
historical argument for a government postal service as stemming from
its resemblance to a public good—a term economists and political
scientists use to describe goods or services whose benefits cannot be
limited to those willing to pay for them. Even doctrinaire
libertarians accept that lighthouses and armies should be funded by
taxpayers for this reason, but they allow few if any other rationales
for government provision of goods and services.

The task force argued that the Postal Service once resembled a public
good, but that the rise of internet communications had relegated it to
a safety net role. Aside from the highly debatable claim that a
delivery network operated as a public service is less important in the
age of e-commerce, framing the question around whether the Postal
Service is or is not a public good makes little sense since the Postal
Service is not funded by taxpayers.

The Postal Service does, however, have features of a natural monopoly
with positive externalities, similar to other public or regulated
utilities. A natural monopoly means that an established postal network
can fend off competitors due to the fixed cost of building the network
and network effects that make a service more valuable and cheaper to
operate the more people who use it. A private service, unlike a
government agency with a public service mandate, will underprovide
services relative to what is socially optimal because monopolies
maximize profits by restricting supply to raise prices, and because
some benefits are not captured by paying users (the aforementioned
“positive externalities”).

In the postal context, a private service left to its own devices will
reduce or stop offering services in higher-cost areas, especially
rural and poor regions of the country. While the task force claimed
its proposed business model would not disadvantage rural residents, it
defined this narrowly as maintaining uniform postage rates, while
suggesting service reductions for rural customers, including closing
post offices and reducing access points by clustering mailboxes.

In short, while you can make an argument for replacing a government
postal service with a regulated private monopoly, the advantage of
either option depends on the relative effectiveness of a government
provider or regulator. The task force’s rationale for shrinking the
Postal Service conveniently ignores the best arguments for maintaining
it as a public service, notably the fact that it resembles a natural
monopoly with positive externalities.

_Appointment of Postmaster General Louis DeJoy_

In June 2020, Treasury Secretary Mnuchin engineered the appointment of
Louis DeJoy, the former CEO of a logistics company, to head the Postal
Service. XPO Logistics, which bought DeJoy’s company New Breed
Logistics in 2014 and kept him on as a director, has contracts with
the Postal Service and many of its major customers. Amazon was
reportedly XPO’s largest customer until 2018, when Amazon decided to
expand its own warehouse and delivery operations (Baertlein 2019).

The new postmaster general was a controversial pick. His candidacy was
promoted by Robert M. (“Mike”) Duncan, a former Republican
National Committee chairman and ally of Senate Majority Leader Mitch
McConnell. Trump appointed Duncan’s son to be U.S. District Attorney
for the Eastern District of Kentucky in 2017 before appointing Duncan
Sr. to the Postal Service Board in 2018. DeJoy himself is a major
Trump donor (who, among other things, gave large sums to the RNC
during Duncan’s tenure and to political action committees with ties
to McConnell) and was the chief fundraiser for the party’s 2020
convention (Bogage 2020c; Mak, Dreisbach, and Temple-Raston 2020;
Schouten 2018; Arkin 2020). Two members of the board, including Deputy
Postmaster General Ronald Stroman, resigned, reportedly in protest of
Mnuchin’s interference in the Postal Service’s internal affairs
and DeJoy’s selection (Herb and Dean 2020; Dayen 2020a). The other
board member who resigned, Vice Chair David C. Williams, compared
Mnuchin’s interference to an earlier attempt by the George H.W. Bush
administration to wrest control of the independent agency by
withholding funds (USPS OIG 2016b).

DeJoy is no friend to workers. A Cornell University analysis of the
mailing industry commissioned by the American Postal Workers Union in
2004 (Hickey 2005) painted a scathing portrait of New Breed Logistics
not simply as a company that actively opposed unionization
efforts—hardly uncommon in the United States—but as one whose
central business model was encouraging unionized companies and
government agencies to outsource their supply chain management to
nonunion New Breed. USPS was New Breed’s largest customer in 2002
and the Postal Service accounted for a fifth of New Breed’s revenues
in 2004. Depending on the year, the Postal Service and other
government contracts were responsible for anywhere from 25% to 95% of
the company’s revenues.

Describing unions in promotional materials as “cultural
obstacles,” New Breed engaged in illegal anti-union activities to
ensure that not a single employee would be represented by a union. The
Cornell study recounts the lengths DeJoy went to in order to achieve
this. When New Breed took over a contract for a container facility on
an Army base in California, it refused to hire the 12 unionized
employees, instead conducting a secret hiring process offsite. Since
this is illegal, the company falsely claimed that the former employees
had not applied for the jobs. The National Labor Relations Board ruled
that New Breed had acted with anti-union animus and pursued a rare
motion for injunctive relief, which New Breed tried to challenge all
the way to the Supreme Court. More recently, a series of _New York
Times_ articles reported on unsafe working conditions and charges of
unfair labor practices in warehouses managed by XPO, the company that
bought New Breed in 2014 (Silver-Greenberg and Kitroeff 2018; Kitroeff
2019). New Breed was also cited for retaliating against workers who
had filed sexual harassment complaints.

As the Postal Service is under pressure to save costs by degrading
middle-class jobs, union-busting and health hazards in this sector are
serious causes for concern. DeJoy has wasted no time making changes
that sacrifice service with directives banning late trips and extra
trips to deliver late items (Bogage 2020a). These are presented as
cost-saving measures but smack of sabotage, since on-time delivery is
a major selling point for the Postal Service and its competitors. As
American Postal Workers Union President Mark Dimondstein has noted,
“Undermining and degrading the Postal Service helps frustrate the
customer, which sets the stage to privatizing it” (Bogage 2020a).

A party at odds with its constituents

The Postal Service is very popular, especially with rural Americans.
Surveys consistently find the Postal Service among the most popular
government agencies, with 91% of Americans expressing approval in a
March 2020 Pew poll (Pew Research Center 2020). A RAND poll conducted
in May found the Postal Service was second only to the Centers for
Disease Control and Prevention (CDC) in public trust, with rural
Americans, who tend to vote Republican, giving it especially high
marks (Pollard and Davis 2020; Parker et al. 2018).

However, anti-government sentiment among Republican lawmakers often
outweighs their constituents’ economic interests.
Republican-controlled states have been slow to expand Medicaid under
the Affordable Care Act, forgoing billions in federal dollars in
addition to harming the physical and financial well-being of families
in these states. With increased polarization and sorting of districts
and states into Republican and Democratic strongholds, Republican
incumbents often face more danger from primary challengers than from
opponents in general elections, making them reluctant to provoke the
ire of more ideological voters and big-money donors. Nevertheless, the
fact that 26 House Republicans recently broke ranks to support
pandemic aid to the Postal Service reflects its broad popularity
(Fandos and Cochrane 2020).

If a party’s political brand is limited government—and Republicans
in the Trump era have been increasingly willing to attack even
government functions the party previously supported—underfunding
public services may seem to make strategic sense. “Starving the
beast” leads to deteriorating public services, which in turn can
lead to reduced support for these services. This also explains
Republicans’ reluctance to include significant funding to state and
local governments in pandemic relief legislation passed to date. But
this presents political risks, both in terms of being blamed for
deteriorating public services and because state and local government
cutbacks further damage an economy already suffering from insufficient
demand for goods and services (Tahmincioglu 2020).

Underfunding government in order to shrink it undoubtedly appeals to
the party’s wealthy supporters. Big-money donors also tend to be
antagonistic to public-sector unions, including the four that
represent rank-and-file postal workers (Pilkington 2018). In addition
to resisting pay cuts, unions are often the most effective champions
of public services, and this has certainly been true of postal unions.
But while some conservatives do not like government in the abstract,
most voters like programs they have direct experience with, including
those the ideologues are most eager to eliminate or radically
transform, such as Social Security, public schools, and the Postal
Service. Even the much-maligned Affordable Care Act is increasingly
liked by voters, which helps explain why President Trump and other
Republicans have tried to claim credit for its benefits while quietly
trying to kill it in the courts (Sullivan 2020; Rizzo 2020).

Though full privatization efforts have not borne fruit, they have
succeeded in putting the Postal Service and unions on the defensive
and expanding the private sector’s role. This may have been the
primary goal all along. Though some think tank libertarians may be
true believers in privatization efforts, most “reform” efforts are
fueled by competitors who want to encroach on or curtail the Postal
Service’s activities and by major customers who support
privatization as a way to force the Postal Service to reduce labor
costs or outsource to low-cost providers.

There are parallels with Social Security. While President George W.
Bush’s high-profile attempt to replace Social Security benefits with
401(k)-style accounts was soundly defeated, these benefits have
gradually been reduced while tax subsidies for 401(k) plans have
expanded since 1983 (Reno, Bethell, and Walker 2011; EBRI 2018). In
the case of the Postal Service, overt privatization attempts have
never gone beyond an exploratory phase. Nevertheless, the hollowing
out of the Postal Service has proceeded apace, mostly a result of
workshare discounts offered to bulk mailers and third-party service
providers.

The PAEA sped up back-door privatization. Its onerous requirements
spurred the Postal Service to cut post office hours, close
distribution centers, and outsource more of its functions
(Christensen, Francis, and Hatch 2016). The Postal Service also came
under increased pressure to move to five-day-a-week delivery even as
e-commerce boomed and customers became accustomed to faster service
(Christensen 2012). Six-day delivery gives the Postal Service a valued
niche delivering goods ranging from ice cream packed in dry ice to
life-saving drugs (USPS OIG 2015e). However, the Postal Service’s
reputation for reliably speedy delivery has suffered since Trump’s
hand-picked postmaster general began implementing service cuts
(Cochrane et al. 2020).

Looking to the future

Congress has left the Postal Service to wither on the vine. Political
polarization has rendered Washington so dysfunctional that the USPS
Board of Governors was entirely vacant in 2016 (Christensen and
Stuessy 2018). The following year, then–Postmaster General Megan
Brennan told Congress that no amount of cost-cutting and defaulting on
contributions to employee benefit plans would balance the books given
the fundamental imbalance between costs fixed by law and statutory
constraints on revenue-generating activities imposed by Congress
(Brennan 2017).

The incoming Biden administration will have its hands full repairing
the damage inflicted by its predecessor. This will require new
leadership. The USPS Board consists of up to nine presidential
appointees, who serve seven-year terms, plus the postmaster general
and the deputy postmaster general, who are selected by the board and
serve indefinite terms. The current board is composed of five
Republican Trump appointees, plus Postmaster General DeJoy. Four seats
are vacant, plus the deputy postmaster general position. Unless
President Trump is able to make additional appointments during the
remainder of his lame-duck presidency (all of these appointees would
have to be Democrats, since a maximum of five appointees on the board
can be from the same political party), President-elect Biden should be
able to fill the four current vacancies plus up to four more that will
open up during his term. This assumes, of course that Republicans do
not maintain control of the Senate and quash his appointments.
However, DeJoy and the Trump appointees on the board may be able to
maintain control long enough to inflict more damage on the Postal
Service, especially if they are able to hand-pick a deputy postmaster
general who would also have a seat on the board.

A change in leadership will not be enough. The Postal Service cannot
thrive under the PAEA. Whether the PAEA’s disastrous prefunding
provision was a booby trap or simply a mistake, Congress’s
unwillingness to amend the law to adapt to changing circumstances in
the ensuing years reflected not only growing polarization and gridlock
in Congress, but outright hostility to the Postal Service from
Republicans on the House Oversight and Government Reform Committee,
among others, quashing attempts by the PAEA’s co-sponsors and others
to repair the damage (Nichols 2013; WSJ 2011).

There are glimmers of hope. In February, the House passed a bipartisan
bill, with the support of 87 Republicans and 222 Democrats, that would
eliminate retiree health prepayments and forgive the remaining balance
(Katz 2020; U.S. House Clerk 2020). However, the Republican-controlled
Senate has yet to schedule a vote on a companion bill.

Congress urgently needs to provide the Postal Service with the same
pandemic relief as airlines and other private-sector employers facing
a collapse in demand (Steinberg 2020). Allowing the Postal Service to
fail would have negative economic and social consequences throughout
the country, especially in rural areas and low-income urban
neighborhoods.

Postage rate caps should be relaxed after the economy recovers. A
postage increase is not the answer during the coronavirus crisis.
Raising rates now would amount to a tax on businesses and households
at a time of high unemployment.

The bigger issues that need to be addressed are outsourcing and limits
on Postal Service activities that benefit big corporations at the
expense of American families. Concerns over the postal monopoly and
“unfair competition” are misplaced. We should worry less about
regulated public monopolies and more about underregulated large
corporations. While the e-commerce and package delivery sectors tend
to be highly concentrated due to network economies, there is also
increasing consolidation in mail-processing and related industries due
to technological, regulatory, and other barriers to entry. Industries
undergoing consolidation include direct mail printing, mail-processing
software, and third-party logistics (Patel and Qian 2019; Stoller
2020; Burnson 2019).

The goal of government should be to raise, not lower, labor standards.
Though both “high-road” and “low-road” employers can be
competitive, it is worse for society when the main competitive
advantage a company or public service has is paying low wages. The low
road leads to increased poverty, widening inequality, and taxpayers
bearing more of the burden of meeting families’ basic needs through
means-tested government programs.

A range of federal, state, and local laws are designed to ensure that
government actions do not exacerbate poverty and inequality. The
Davis-Bacon Act requires contractors in federally funded construction
projects to pay the prevailing (usually union) wage, and the
McNamara-O’Hara Service Contract Act does the same for contractors
providing services to the federal government (Parrott 2014). Living
wage ordinances in many municipalities around the country require
businesses that have government contracts or receive government
assistance to pay above-minimum wages to ensure that workers and their
families do not live in poverty. Though Postal Service contractors are
generally covered by these laws, the laws do not apply to companies
taking advantage of worksharing discounts as opposed to directly
contracting with the Postal Service.

Steep workshare discounts allow outsourced work to be profitably
performed by any company with lower labor costs than the Postal
Service, not necessarily the most efficient company. For this reason,
a report from the inspector general’s office recommends that the
Postal Regulatory Commission allow the Postal Service to reduce
worksharing discounts (USPS OIG 2010). This would have the dual
benefit of allowing the Postal Service to capture some cost savings
and potentially reduce race-to-the-bottom outsourcing to low-wage
companies. Though this change would not require legislative action,
the Commission has not implemented this recommendation. A more
far-reaching solution should address the loophole allowing low-road
employers who would be prevented by the Service Contract Act to
perform contracted work for the Postal Service to take advantage of
workshare discounts to perform outsourced work.

The Postal Service should not be prohibited from entering markets that
fit with its public service mandate. If there were less resistance to
expanding the scope of government to meet unmet needs and take
advantage of natural monopolies, the Postal Service could not only
offer postal banking services but could also compete with Amazon as a
one-stop shopping and delivery conduit to independent retailers. There
is much discussion of how the growth of electronic payments has
reduced mail volume and contributed to the Postal Service’s
financial challenges. Another way to look at this trend is to see that
a private monopoly—Amazon—is replacing a public one, without,
however, a public service mandate. While President Trump may have been
wrong to suggest that Amazon is taking advantage of the Postal Service
with a sweetheart deal for last-mile delivery, the long-run health of
our economy depends on limiting Amazon’s ability to take advantage
of network economies in payments and delivery systems to squeeze small
businesses, workers, and ultimately consumers.

Conclusion

The GOP’s “big tent” is getting smaller. The Republican Party
has historically balanced individual and community values; the
interests of global corporations and patriotism; free enterprise and
public service. In its support for privatizing a beloved public
service, however, libertarian and narrow business interests have
trumped tradition and broader community interests, including those of
rural residents and small business owners.

Rather than openly attacking popular government programs,
anti-government activists try to paint these programs as obsolete and
inefficient. For would-be reformers, recessions and other crises
present opportunities for radical change. But privatizers can cite no
hard evidence of poor service or a reluctance to innovate (Keating
2013). If anything, the fact that Postal Service jobs—unlike many in
the private sector—provide a decent middle-class income has forced
the Postal Service to innovate and invest in labor-saving technology
because it is less able to rely on low-wage labor than competitors
such as FedEx. The incoming president, who has signaled that creating
good jobs will be central to his economic agenda, should include
bringing back Postal Service jobs lost to outsourcing among his
priorities.

The Trump administration and other would-be privatizers simply assume
the answers to the key questions of whether a privatized service would
be more efficient and whether allowing the market to set prices would
make people better off. Adam Smith famously argued in _The Wealth of
Nations_ that the self-interest of “the butcher, the brewer or the
baker” can lead to the socially beneficial provision of goods and
services. However, much economic discourse since Smith’s time has
revolved around when markets do and do not achieve desirable results.

Even with textbook competitive markets and in the absence of
externalities, Kenneth Arrow and other economists have demonstrated
that you can never assume that free markets maximize well-being
because people have different tastes and inherited advantages, among
other reasons. A competitive market can only be said to be Pareto
optimal, meaning that no one can be made better off without making
someone else worse off. As Arrow noted in his Nobel Prize speech,
“An allocation of resources could be efficient in a Pareto sense and
yet yield enormous riches to some and dire poverty to others” (Arrow
1972).

The real issue is whether the Postal Service should reflect
egalitarian democratic values or profit-maximizing free market ideals.
A functioning democracy serves as a counterweight to unequal resources
even in a capitalist society, and voters may prefer a Postal Service
with more equal pricing and services than would occur in an unfettered
marketplace. In addition to the fact that a postal network does not
operate in an environment where it is easy to assume that
private-sector competition will lower prices and improve quality,
there are many areas of society where most people prefer government or
nonprofit providers over for-profit ones, including education and
health care (Quilantan 2020; KFF 2020). Often these are areas where it
is important that those providing the services be motivated by a sense
of responsibility more than personal gain. Like public schools and
hospitals, the Postal Service is a concrete reminder that while
for-profit companies may make the best smartphones, civic-minded
institutions are better suited for many other purposes, especially
when public trust is paramount.

Another common refrain is that government services should be targeted,
not universal. This allows small-government advocates to stake the
moral high ground by offering to take better care of those who really
need it while reassuring vulnerable but influential groups. Thus, the
Trump administration task force and other would-be reformers do not
dismiss the concerns of rural residents, but rather assure them their
interests will be protected in a “safety net” system. However, it
is highly unlikely that a Postal Service pared down to what would-be
reformers consider “essential services” will be able to maintain
current services to rural residents at affordable prices.

Comedian P.J. O’Rourke once quipped, “The Republicans are the
party that says government doesn’t work and then they get elected
and prove it” (O’Rourke 2003). This has certainly been the case
with the Trump administration’s undermining of the CDC and Postal
Service during the COVID-19 pandemic. Despite these attempts at
sabotage, most Americans, including Republicans, value government
services. Rather than trying to shrink government on the false
assumption that the private sector is always more efficient, we should
consider expanding government entities—like the Post Office—that
have proven their worth.

Acknowledgments

The author would like to thank Sarah Ryan, Jim Sauber, and David
Williams for taking the time to share their expertise; Krista Faries
for skillfully editing an unwieldy report; and Melat Kassa for
excellent research assistance. The author is alone responsible for the
views expressed and any errors remaining in the report.

Appendix: Methodology note

In both regression results reported here, the dependent variable is
the natural logarithm of inflation-adjusted annual earnings. In
Appendix Figure A, the baseline is the earnings of full-time
private-sector workers (all workers in the analysis work 35+ hours a
week and 50+ weeks a year). In Appendix Figure B, the baseline is the
earnings of male, white, non-Hispanic (NH) workers without a high
school diploma.

A log-linear model is used to estimate percentage differences from
baseline earnings, controlling for education, hours worked, age, year,
and, in some cases, gender, race, and ethnicity. While the
coefficients shown in the appendix figures serve as approximations,
more accurate estimates cited in the text are calculated using
the _e_^(_b_) − 1 formula, where _e_ is the base of the natural
logarithm and _b_ is the coefficient estimate. For example, in
Appendix Figure A, applying this formula to the coefficient estimate
for government workers with a bachelor’s degree (-0.170, rounded to
two decimal points in the figure) shows that postal workers earn 15.6%
less than private-sector workers (not 17.0% less) since _e_^(-0.170)
− 1 ≈ -0.156.

In the figures, 95% confidence intervals are indicated by lines
extending from point estimates, which are not always visible.
Confidence intervals are wider for postal workers than for other
government or private-sector workers because sample sizes are smaller,
especially for subgroups such as postal workers with advanced degrees.
Confidence intervals that cross the zero line indicate that
differences in earnings from the baseline are not statistically
significant.

Notes

1. 
[[link removed]]Postal
Reorganization Act
[[link removed]],
Pub. L. 91-375 (1970).

2. 
[[link removed]]Unless
otherwise noted, all worker statistics refer to full-time wage and
salary workers and are based on the author’s analysis of microdata
from the Annual Social and Economic Supplement (ASEC) of the U.S.
Census Bureau’s Current Population Survey (Flood et al. 2020). Years
refer to survey years (the ASEC is conducted in March) and pay refers
to the previous 12 months’ pay. Thus, 2019 earnings are earnings
from March 2018 through February 2019. Amounts are inflation-adjusted
based on a 2018 (not 2019) consumer price index (CPI-U) because
reported pay is backward-looking.

3. 
[[link removed]]Source: O*NET
OnLIne [[link removed]] occupation summary reports for
Postal Service Mail Carriers (43-5052.00
[[link removed]]); Postal Service
Clerks (43-5051.00
[[link removed]]); and Postal
Service Mail Sorters, Processors, and Processing Machine Operators
(43-5053.00 [[link removed]]),
accessed September 18, 2020.

4. 
[[link removed]]Changes
in the accounting treatment of retiree health benefits did spur many
private-sector employers to cut these benefits or begin prefunding
them to minimize the liability on their books (Munnell, Aubry, and
Crawford 2016). Likewise, state and local governments must estimate
how much they would need to contribute to prefund benefits within 30
years, but they are not required to actually make the actuarially
determined contribution (GASB 2004).

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See related work on Regulation
[[link removed]] | Public-sector workers
[[link removed]] | Voting access
[[link removed]] | Coronavirus
[[link removed]]

See more work by Monique Morrissey
[[link removed]]

_MONIQUE MORRISSEY joined the Economic Policy Institute in 2006. Her
areas of interest include Social Security, pensions and other employee
benefits, household savings, tax expenditures, older workers, public
employees, unions, and collective bargaining, Medicare, institutional
investors, corporate governance, executive compensation, financial
markets, and the Federal Reserve. She is active in coalition efforts
to reform our private retirement system to ensure an adequate, secure,
and affordable retirement for all workers. She is a member of the
National Academy of Social Insurance. Prior to joining EPI, Morrissey
worked at the AFL-CIO Office of Investment and the Financial Markets
Center._

_EDUCATION_

Ph.D., Economics, American University

B.A., Political Science and History, Swarthmore College

_ Follow @MoniquMorrissey [[link removed]]_

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