Labor costs should be on USPS reform list

This editorial from the Orange County Register does not necessarily reflect the view of The Spokesman-Review editorial board.

There is even more bad financial news for the U.S. Postal Service, according to a recent report from the agency’s Office of Inspector General. In addition to sharply declining mail volume and significant required payments for retiree health care, the USPS is struggling with high workers’ compensation costs.

The OIG’s report noted that, while the Postal Service since 2008 has cut its workforce by about 172,000 employees – a 19 percent reduction – its workers’ compensation costs have increased 35 percent. The Postal Service’s average workers’ compensation cost per employee work hour in fiscal year 2013 was $1.16 – nearly 60 percent higher than the private-sector rate, 73 cents.

The cost increases have been driven by an aging workforce more prone to injury, a reduction in light-duty or limited-duty positions and cost-of-living increases. Also, while the number of new workers’ compensation claims has dropped during the past few years, the number of fraudulent cases has increased. The report cited several examples of fraud cases.

“One employee claimed she could not handle 10 pounds of weight and needed assistance with such activities as bathing, driving, laundry and going to the store,” the OIG related. “However, the employee was observed at the gym participating in an exercise class, which involved the use of weight training exercises with a barbell, exercising on a treadmill and a stair machine.”

The OIG estimated that the Postal Service could save $477 million per year by emulating practices utilized by private-sector businesses and state agencies, including capping the duration and amount of benefits, allowing the agency to settle or buy out cases, and requiring injured employees to use a preferred network of physicians and use generic drugs, when available.

While the postal unions claim that the Postal Service’s financial problems are chiefly because of a 2006 law that requires it to prepay its retiree health care obligations to the tune of about $5.5 billion a year, the OIG report underscores that labor costs, along with the shift to digital communication, are driving the Postal Service’s financial problems.

The Postal Service spends 78 percent of its total operating expenses on labor costs, such as wages and benefits (76 percent if you ignore the retiree health care payment). Compare that with the 59 percent rate at UPS, which is unionized, or the 39 percent rate of FedEx, which is nonunion.

Various studies estimate Postal Service employees earn 20 percent to 30 percent more than their private-sector counterparts, plus a rich benefit package.

To be sure, relieving the Postal Service of rules that tie its hands and drive up its costs would be a step in the right direction. An even better reform would be to relieve it of its monopoly over first-class mail and allow competition to determine the best ways of delivering the mail.