The purpose of this submission is to address the numerous claims that
have been made that the pay of postal workers is too high and that labor
costs are about 80 percent of total USPS costs. I am an economist who
has analyzed postal pay and other issues for almost 25 years. On
occasion I have been invited to testify before Congress, and have
otherwise made my views known through Op-Ed articles.

I am president of Joel Popkin and Company, an economic consulting
company established in 1978. Before that, I was director of the
Washington Office of the National Bureau of Economic Research headed by
Martin Feldstein, and served at the President's Council of Economic
Advisers (CEA) when Herbert Stein was its chairman. At the CEA I focused
in particular on the wage and price controls of 1971-74. That
responsibility resulted from experience gained in my prior post as BLS
Assistant Commissioner for Prices and Living Conditions in which I was
the senior civil servant charged with the compilation and publication as
the Consumer (CPI) and Producer (PPI) Price Indexes. I hold a BS in
Economics from the Wharton School of Finance of the University of
Pennsylvania, and a Ph.D. in economics from the same university.

**[Labor Costs as a Percentage of Total Costs]{.underline}**

My comments address three issues. The first is the widespread popular
characterization --spin, if you wish\-- of labor costs as representing
80 percent of the total costs of USPS. That is blatantly incorrect.
Publicly available USPS records (summarized since 1984 in Chart A) show
that wages and benefits allocated to workers covered by collective
bargaining represent 56.8 percent of total costs. Costs associated with
workers covered under APWU bargaining agreements, largely mail
processing and retail station clerks, accounted for only 26.0 percent of
USPS costs in the 2002 fiscal year. In addition, the data in Chart A
show that over the past couple of decades the labor share of postal
costs has declined, the share of the APWU most dramatically. I would
hope your report will reflect the correct data on the labor cost share
of USPS costs and recognize that today's share reflects a substantial
decline from 1984.

![](media/image1.wmf) Some might argue that total compensation costs for
all postal employees, including managers, at 76.8 percent, are high as
compared with competitors. But if the comparison is properly made there
is not much difference in compensation cost share between the USPS and
two of its important competitors, UPS and Federal Express. The makeup of
operating expenses is heavily dependent on how the business is
structured. The capital intensity among USPS, UPS and FedEx differs
considerably because of the nature of each business. For example, FedEx
owns and operates a significant fleet of airplanes. Overnight speed is
the major factor consumers are paying for when they purchase FedEx\'s
services and that speed is produced by its airfleet. However, the fact
that it owns such a fleet means that its total operating expenses are
much more heavily weighted toward capital than toward labor and
therefore a cursory inspection will show a relatively large difference
in the labor share of operating expenses for FedEx and for USPS.
FedEx\'s labor share is the lowest of the three. But the 2002 gap
between FedEx and USPS narrows to about 13 percentage points if
operating data are treated consistently to take account of differences
in capital intensity. Such an adjustment is made in a paper by Workplace
Economics which I understand will be posted on the APWU website for
anyone interested in analyzing the full set of numbers.[^1] On this same
consistent basis, the UPS labor cost share was only 7 percentage points
lower than the USPS share in 2001. However, this analysis still has made
no adjustment for the fact that the USPS must send a postal worker past
every residential address, and many business addresses, six days a week,
which is a very labor intensive requirement.

**[Postal Workers' Pay Comparability]{.underline}**

![](media/image2.wmf) The second issue concerns the allegation that
postal workers are overpaid. This allegation was first made in the
negotiation context by the USPS in a presentation made at the bargaining
table in 1980. I was present as a consultant to the APWU, a position I
continue to hold. I inquired whether this model-based analysis took
account of the sex and race composition of the USPS vis-à-vis the rest
of the private sector workforce and was informed it did not. So I
proceeded, using the same model, to introduce race and sex variables.
Our first result was published in an academic journal in 1984. I found
that the wages of white male, postal employees were at a level not
statistically different from those of white males at work in the private
sector. That was not the case for women or non-white men. In subsequent
analyses using more recent data, this pay pattern, while mitigated over
the years by private and public sector initiatives, continues to
prevail. Chart B shows the results of our first and latest of the issue.
Thus, the evidence shows that wages of white male postal employees are
at or below wages of comparable white males in the private sector. Women
and non-white male postal workers are, of course, paid equal pay when
they perform the same work as that of their white male co-workers. You
will note, in the chart, that the result for white males continues to
show private sector parity, and perhaps even some premium in favor of
the private sector according to the latest analysis.

This result was first presented in 1984 to an arbitration panel chaired
by Clark Kerr, an internationally renowned labor economist. The analysis
was introduced to rebut results introduced by the USPS, by then using a
model different from that presented in 1980 during collective
bargaining. After hearing both sides present their models, and the
results they yielded, Dr. Kerr concluded "Comparability, like beauty,
quite obviously, is in the eyes of the beholder". He went on to fashion
an award that, while providing restraint, was also designed to provide
postal workers with real wage gains. While the statistical models were
debated in the subsequent three arbitrations, no arbitrator has tied his
findings to those models.

**[Postal Pay Has Tracked CPI and Lagged ECI]{.underline}**

Because discussions about statistical models of comparability are moot,
I think it may be useful to present actual data on how postal wages have
changed in comparison with those of other private sector workers. That
is the third purpose of this submission. Chart C-1 first shows how APWU
wages have changed since the 1984 arbitration as compared to changes in
private sector wages, as measured by the BLS Employment Cost Index
(ECI). Two wage series are shown for the APWU bargaining unit. One is
the average straight-time hourly wage of all employees in the APWU
bargaining unit. The second is for one slot in the APWU's pay schedule
-- that for level 5, step O, the pay step with the most workers in it,
or the "modal" slot. It is also the top of the pay scale for level 5
workers. The data show that, after a period in which all three measures
tracked rather well, a widening gap has opened in favor of the private
sector since the early 1990s. Private sector wages have risen faster
than either APWU measure. Since June of 1992, when the divergence began,
the ECI has risen 41 percent, the APWU straight-time hourly
![](media/image3.wmf)wage has risen 27 percent, and the level 5 step O
wages, have risen 23.3 percent.

Chart C-2, on the next page, analyzes the same time wage measures but
divides each by the CPI in order to measure real, inflation-adjusted
wages. The chart shows that by either APWU wage measure postal workers
gave up real wages during the 10 year period; one percent for the
bargaining unit as a whole, almost four percent in level 5, step O. That
is in stark contrast to a 10 percent real wage gain enjoyed by the
private sector workers. But the lack of any significant real wage gain
for postal employees is not a phenomenon of the period since the 1984
Kerr arbitration. As Chart C-3 shows, real wages have been virtually
flat since the PRA became the law in the early 1970s.

I hope this information will be used by the Commission to dispel the
pervasive myths about the pay of postal workers. If I can be of further
assistance, please let me know.

![](media/image4.wmf)![](media/image6.wmf){width="2.386111111111111in"
height="0.3076388888888889in"}![](media/image6.wmf){width="2.386111111111111in"
height="0.3076388888888889in"}

[^1]: *The Relative Size of Labor Costs at UPS, FedEx and the U.S.
    Postal Service,* Workplace Economics, Inc., January 2003.