Is it Cheaper to Offer Early Retirement?

In a recent article in Sioux City Journal on the moving of mail processing from Sioux City, IA to Sioux Falls, SD, Jim Price, Sioux City Postal Workers Union Local 186 officer contends that, "Employees who would drive from Sioux City to Sioux Falls and back would include that drive-time as part of their work day."   The map below shows the shortest route from Google maps between Sioux City, IA and Sioux Falls.  The distance is 87.9 miles with most of the miles on Interstate Highway 29.   



View Larger Map

If Mr. Price is correct, the Postal Service will be paying employees that commute to Sioux Falls for 3 hours of driving time daily.  This makes little sense for the Postal Service or the employee.   [I urge readers of this blog to add a comment referencing Postal or employee contract documents that describe the basis for Mr. Price's comments.]  

If true, the Postal Service would be well served to offer employees in Sioux City and Sioux Falls early retirement.  This saves the Postal Service money in two ways.  First, early retirement would save the Postal Service $506 per week associated with pay for commuting costs.   Second, if a new employee is needed to fill a position that the newly retired employee would take, his/her compensation would be lower than the salary of the retired employee.   If the compensation difference between an employee at the top of the pay is $10 per hour, the Postal Service would save $400 per week to switch by replacing a retiree with a new hire.  

In total, offering early retirement would save the Postal Service around $900 per week.   In other words, the Postal Service would break even by offering a $15,000 incentive if the employee would retire 17 weeks (3 months) earlier than they might otherwise.   The savings would be larger if no new employee needs to be employed.  

This simple calculation suggests that any time a consolidation of plants would involve paying for any commuting time between two locations, early retirement incentives of $15,000 to employees at the consolidated plant community would be well worth it.   Given how quickly the Postal Service covers the cost of the retirement incentive, the Postal Service might even find it worthwhile to pay the incentives in one payment unless the employee prefers two payments for tax purposes.  

The savings from early retirement identified here raises two more interesting questions.  Could offering early retirement incentives in selected cities to APWU members and either not replacing these employees, or replacing them with lower-paid new hires reduce the Postal Service's expenses in fiscal year 2012?  Does the Postal Service have the cash needed to offer these incentives?

Canada Post Strike: a Lose - Lose Proposition for CUPW

For over a week, the Canadian Union of Postal Workers (CUPW)have struck Canada Post in a series of rotating strikes that affects Canadian cities on nearly a random basis.    The impact of the strike is clear and it is not good for either CUPW members or Canada Post customers. 

According to Canada Post, daily mail volume is down 50%.   In response Canada Post has cut delivery to three days per week in urban areas. CUPW employees not on strike find their work hours curtailed to match the lower mail volume and reduced delivery schedule.

In authorizing a strike, CUPW members clearly believed that Canada Post's offer was a losing proposition for them.   Like postal workers in many countries, they saw that long standing benefits and regular pay increases were threatened with new approaches to benefits and less certain pay increases.  They also saw major changes in their work environment and Canada Post introduces sortation to carrier route sequence as well as other changes designed to reduce costs, with cost reductions not going to wages and benefits but going to earnings and lower or stable rates for customers.  

Unfortunately for CUPW employees, the result of authorizing the strike is also a lose proposition.   Following the strike, CUPW members will likely work for a greatly weakened Canada Post.  Mail volume that switched to electronic alternatives will not likely return to a printed form that CUPW members sort and deliver.    Parcels shipments that were handled by CUPW members that switched to Canpar, DHL/Loomis, FedEx, Purolator, or UPS will be tough to get back as shippers in the important B-2-C market find that other carriers can do the job as well as Canada Post.  

Without a return to pre-strike volume levels, Canada Post will likely accelerate its modernization efforts, and combined with its regular efforts to optimize staffing levels and delivery routes, will likely employ fewer employees than it planned if a strike had not occurred.

Right now it is unclear, how the current impasse can end.   The longer it goes on, the weaker Canada Post becomes, but it is unclear whether a weaker Canada Post will be more willing to agree to union demands.   In fact, an argument could be made that a weaker Canada Post could become even more reluctant to change its position and may even request even greater changes in wages, benefits, and working conditions than was in its original offer.

One idea that is not on the table that could help resolve the impasse, would be some form or employee ownership of Canada Post in return for the changes that Canada Post management wants.   This ownership, whether in the form of voting or non-voting shares would give employees a share of the benefits of the contract changes as owners that Canada would be highly reluctant to grant them as employees.   This would be a major change in Canada Post's governance but one that the CUPW and Canada Post should think about if they want to ensure a vibrant Canada Post in 2020 and beyond.

Historical Analogy:   In 1997, the Teamsters went on strike against UPS for 15 days.   At the end of the strike, UPS acceded to many of the Teamsters demands as the long-term impact of business was clear.   (A PBS interviews with representatives from the Teamsters and UPS provides a perspective on each side's position following the strike's end.)

The strike showed UPS customers, which at that time represented nearly 90% of all parcel shippers, that a quality alternative existed, RPS (now FedEx Ground).   Customers who during the strike were able to switch, stayed with RPS.  Nearly every quarter since the strike,  RPS/FedEx Ground has taken market share away.  

In subsequent agreements, the Teamsters did agree with most of the changes UPS wanted including withdrawal from the Central States multiemployer pension plan, and lower wages for new part-time workers. 

The Teamsters now face the challenge of negotiating with UPS that is no longer a near monopolist in the parcel market.  These negotiations require that contract terms recognize implicitly the impact of competition from a non-union FedEx, the Postal Service, and numerous non-union smaller regional parcel carriers.

Note for American Readers:  One wonders how the agreements between the Postal Service and APWU and other unions would differ under labor law similar to what Canada Post operates under.   (This is law somewhat similar to the Railway Labor Act.)   Also given that single-piece mail is declining at around 10% year-to-year, how would a strike increase that decline especially since a large percentage of single-piece mail is bill payments?

The APWU Contract Takes Effect

The Postal Service has begun taking advantage of the APWU contact by issuing hiring announcements for Postal Support Employees (PSE's) nationwide.  PSE's should become a major part of the workforce at a signicantly lower cost to the Postal Service within two months. 

The initial pay is as follows:

• PSE Custodian $12.00
• PSE Clerk: $12.38 or $14.60 depending on location
• PSE Motor Vehicle Driver: $15.85

Beyond salary and employment taxes, the Postal Service will have minimal benefit expenses for the first year. 

The impact of these new hires on Postal Service labor costs should be clear by September.

Here are the details of one announcement.

Job Title
PSE CLERK

Facility Location
EUGENE
3148 GATEWAY ST
SPRINGFIELD, OR 97477-1186

Position Information

TITLE: PSE (Postal Support Employee) Non-Career position NTE (not to exceed) 360 day appointment

There is NO guaranteed number of work hours. This is night shift work, swing shift and graveyard shifts, evenings and weekends. Your schedule will be based on mail volume, availability of the regular work force and the needs of the service. You must be available to report to work on short notice. Work schedules vary from facility to facility and week to week. No
guarantee of number of hours per day or days per week.

Salary $14.60 per hour limited to NTE 360 appointment

Limited benefits include opportunities for raises, paid vacation days, and access to health insurance after the first 360 day term.

Comparing Labor Cost Proportions at the USPS, UPS, and FedEx

Update: this chart in this post has been replaced to correct a silly error.  The USPS delivers to residential addresses 6 days a week.  I know that and I know that all readers of this blog know this as well.  I would like to thank the reader who posted the comment that force me to fix this error. 

In a discussion today on his Facebook page, Representative Dennis Ross fell into a common trap in comparing the labor's portion of costs by the USPS, UPS and FedEx.  He states that:

UPS (Union) - about 66% of their total operating costs are labor. FedEx (non-union) - about 45% of their total operating costs are labor. USPS - 80-82%.

The differences in the proportion of labor costs can come from one of six factors:

1. Compensation levels - what each company pays per hour worked
2. Work rules - affects how efficiently each company uses employees
3. Contracting - companies use different models regarding the use of contractors to handle the collection to delivery process, and in particular the labor-intensive delivery function
4. Network differences - Differences in the network affects the amount of labor involved in delivery, sortation, transportation and retail portions of an end-to-end movement.
5. Capital intensity -  The companies have very different capital requirements that affect the amount of non-labor costs needed to provide the services that they offer.
6. Congressional requirements - Congressional requirements focus on the aspects of the Postal Service that add significantly more labor costs while making minimal impact on capital spending.

Compensation Levels

I have already presented a comparison of compensation levels between the Postal Service, UPS, and FedEx.   The comparison showed that total compensation of Postal Service employees in a delivery function clearly fall in between the compensation of UPS and FedEx.  

Employees who work inside processing facilities at the Postal Service on average are paid more than FedEx and UPS employees.  However, the new APWU contract will result in Postal Service compensation falling in line with what compensation of UPS and FedEx.   (It should be noted that UPS also offers significant college scholarships as a benefit to parcel sorting employees that are not included in these comparisons.)  The compensation levels of the new class of APWU members that could include 20% of APWU employees are very competitive with compensation of individuals with similar experience at UPS and FedEx.

Employees that provide retail services at the Postal Service have no real comparison with employees at FedEx and UPS.  Comparisons are usually made here with other retail occupations and bank tellers.  I have not looked at this comparison but the data is available to make this comparison is available from both private and public sources.
Finally, compensation of UPS and FedEx executives are significantly higher than Postal Service executives.   The compensation levels of managers and technical staff at UPS and FedEx are likely also higher.

On balance, it is unclear how much a compensation premium affects labor compensation's proportion of total costs.

Work Rules

Another factor that increases USPS compensation expenses are work rules used for mail processing, local transportation and retail services.  The new APWU contract, and in particular the new method of defining a full time schedule should go far to eliminate work rules that requires the Postal Service to overstaff its processing and retail facilities.   The new method of defining full time will likely result in employee schedules that are close to the part time schedules that FedEx and UPS use for its sortation centers.

Contracting

The following table illustrates how the Postal Service, UPS and FedEx use contractors.  

Comparison of Contracting at the USPS, UPS, and FedEx

The three carriers have very different operating models that significantly affect the portion of costs that show up in expenses as "compensation and benefits" and "contracted transportation" This makes comparisons particularly difficult as both UPS and FedEx use contractors extensively for retail services and FedEx Ground uses contractors to deliver all parcels.

An accurate comparison would identify the labor component of contracted retail, transportation, and delivery services. This is nearly impossible and is the primary reason that I have never presented a comparison of the proportion of labor costs in my previously published analyses of the parcel industry.

Network Differences

The following chart looks at differences in the networks employed by the USPS, UPS and FedEx. 

 Comparison of USPS, UPS, and FedEx Networks

The Postal Service's delivery network is significantly more extensive than either UPS or FedEx and primarily delivers to residential addresses that are more expense to serve than business address due to volume of deliveries per delivery point.  Delivering 6-days to residential addresses increases the proportion of labor costs as capital expenses for buildings and vehicles are the same whether the Postal Service delivered 5 or 6 days per week, and some operating costs (heating fuel and electricity) do not change as much as labor costs. [added 5/23/2011 3:15 pm along with corrected chart] 

The Postal Service network has significant overcapacity.   To the extent that there is overcapacity in either UPS or FedEx's network it would affect short-term economic impacts or changes in population and economic growth across the United States.   Also both UPS and FedEx are face the prospects of growing volumes so they face some challenges of having sufficient capacity while the Postal Service faces shrinking volumes so its network faces the prospect of increasing levels of overcapacity and the prospect that over time existing facilities will be in sub-optimal locations.

The Postal Service's retail network focuses on less knowledgeable buyers of the services that it offers.  Also, the Postal Service's network faces regulatory and legislated constraints that neither UPS nor FedEx face.

Capital Intensity

Capital intensity affects the proportion of costs that are labor costs.  Companies that are more capital intense have a lower portion of labor compensation costs and vise versa.   For example, an electric utility is a more capital intense business than a nationwide retail chain.   The following chart illustrates differences in capital intensity between the delivery services offered by the USPS, UPS, and FedEx. 

Comparison of Capital Intensity of USPS, UPS and FedEx

FedEx has the most transportation capital needs as they operate the largest fleet of freighter airplanes in the United States. UPS has the second largest fleet of freighter airplanes. Both FedEx and UPS use their aircraft to fly Postal Service mail and parcels, relieving the Postal Service from making substantial capital investments.  The Postal Service's transportation needs focus on its delivery fleet.   However, it has not had the capital needed to replace its aging fleet, so its capital spending on transportation assets are below what may be required for cost-efficient operations.

Both FedEx and UPS are among the leaders in information technology spending among transportation companies.    They both look at their IT investments as a competitive advantage.   The Postal Service, on the other hand, has tended to underspend on information technology resulting in long implementation schedules for needed infrastructure, management information systems, customer information and transaction systems, and track and trace systems for mail and parcels.

Finally, both UPS and FedEx have managed their processing network using network models for years without constraints set by Congress on closing or moving operations.    When additional facilities are needed, or upgraded to ensure proper maintenance and worker safety, they have the resources to make these investments.   The Postal Service is limited to use the facilities that it now has and faces significant backlogs in facility maintenance.   To the extent that facilities are located in the wrong location, or too small to handle sortation of a larger geographic territory, the Postal Service does not have the capital to make those investments. 

Congressional Requirements

The Postal Service face two requirements from Congress that increase the labor cost's proportion of total costs.

1. Restrictions on how retail services are provided -  Both regulatory and legal restrictions on the Postal Service's retail network increase the proportion of total costs that are labor costs.  These costs come from both operating a retail network and managing the process to implement changes in the network.     In addition, Congressional efforts to slow changes to the retail networks add additional labor costs to managing the network to handle questions and concerns of members of Congress.
2. Restrictions on delivery frequency - Requiring the Postal Service to provide delivery services 6 days a week has a larger marginal impact on labor costs  than it does on all other expenses.   The proportion of labor costs would be lower if the Postal Service only delivered mail 5 days per week.

Conclusion

Comparing the proportion of labor costs at the Postal Service with the proportion of labor costs at FedEx and UPS is a nonsensical exercise.   It tells one little about what the appropriate proportion would be for an efficient or properly capitalized Postal Service. 

Focusing on unionized labor costs may be an easy political target for a Republican member of Congress. However, Congressman Dennis Ross would find his time better served if he now focused his time on examining, the Postal Service's financial goals, its capital structure and its real annual capital needs to replace the delivery fleet, optimize the network, modernize retail, upgrade the IT infrastructure and customer interfaces, and cover the transition costs of downsizing the workforce.   By making this shift, Congressman Ross would make a real contribution to postal reform.  His efforts would for the first time address one of the key failures of both the Postal Reorganization Act and the Postal Accountability and Enhancement Act, the failure to adequately recognize that "accounting break-even" is not an appropriate fiancial goal and that an under-capitalized Postal Service is an inefficient Postal Service.

Did Darrell Issa Sabatoge the USPS-APWU agreement

In letter to American Postal Workers Union (APWU) members, APWU President Cliff Guffey identified that a key obstacle to ratification of the contract is rank and file anger with the efforts of Republicans to restrict union rights and reduce the pay and benefits of public and postal employees.   President Guffy's letter indicates that the tone that Republican members of Congress at the April 5th House Oversight and Government Reform hearing combined with the state legislative conflicts in Wisconsin, Illinios and Ohio created an environment in which rank and file APWU members are looking for a way to protest the treatment of unionized employees by Republican politicians.   The APWU-USPS ratification may have become the vehicle for that protest.

The press release quoting the letter lays out President Guffey's argument that the APWU-USPS contract is not the place to vent anger at Republican politicians.

Some very powerful politicians have set their sights on postal employees, APWU President Cliff Guffey has warned, and union members must respond decisively.

“Anti-labor members of Congress have said the union’s tentative Collective Bargaining Agreement [PDF - members only] is too favorable to workers,” the union president noted. “They favor contracting out virtually all of our jobs.

“I have a simple response,” he said. “I encourage every APWU member to get actively involved in union affairs — and to start by voting on ratification of the tentative Collective Bargaining Agreement. We also must get much more involved in the legislative arena.

“Don’t let these naysayers discourage you from voting.”

At an April 5 hearing of the House Oversight and Government Reform Committee, Chairman Darrell Issa (R-CA) and other Republicans repeatedly criticized Postmaster General Patrick Donahoe and members of the USPS Board of Governors for agreeing to the union’s demand during negotiations to retain protection against layoffs. They also said the Postal Service needed more freedom to close postal facilities and cut the workforce.

“This is an attack on our collective bargaining rights,” Guffey said. “The APWU and the Postal Service reached an agreement that would benefit both sides — and now anti-union legislators are attempting to undermine it.”

President Guffy is right to warn APWU members to not use their vote on the USPS contract to vent anger at Republican politicians.   APWU members need to look at the contract and decide whether they can live with the changes in workrules and in particular the possibility that many positions will follow a non-traditional full-time schedule.   They need to determine whether the changes in workrules and contracting-out provisions create opportunities for APWU members that did not exist before and could create opportunities for APWU members to work with the USPS to work with the Postal Service to create products that could compete with presorters.  They need to look at the contract and decide whether it increases or decreases the likelihood that they will have a job with the Postal Service until they are ready to retire given the change in the mix and volume of mail.   They need to look at the changes in pay and benefits for current employees and future employees and determine whether the contract provides them with sufficient protection from health insurance and general inflation as opposed to what could be imposed by legislative action in the current or future Congresses.  Finally, they need to evaluate the risks that exist from turning the development of contract provisions to an independent arbiter who will develop his decision around the time that the Postal Service defaults on payments for retiree health benefit and workers compensation liabilities.

What Happens If the APWU Rejects the Contract?

APWU members now have their ballots for the ratification of the tentative 2010-2015 Collective Bargaining Agreement with the Postal Service.   Like many votes on labor contracts that make significant changes in long-standing work-rules, pay schedules, and compensation levels in industries facing economic change, ratification is not pre-ordained.

Challenging Contract Ratifications

Examples of challenging ratification efforts include both United Parcel Service and Yellow Roadway Corporation.   Unhappiness with a negotiated contract with teamster organized less-than-truckload carriers in the 1970's provided impetus for creation of Teamsters for a Democratic Union.  The 2008 UPS agreement that removed tens of thousands of UPS teamster from the Central States Multiemployer plan, required nearly a year-long public relations effort by the Teamsters union to convince members that members could no longer reject UPS's proposal to set up a separate pension plan just for UPS employees.   Both the 2002 and 2008 contracts also faced opposition due to pay scales for part-time employees who sorted parcels and the number of full time and part-time jobs within sortation centers.   Yellow-Roadway contracts required multiple rounds of negotiations under the threat of bankruptcy and possible liquidation before contracts with major concessions including restrictions in the defined-benefit pension were approved by employees.

The APWU contract has generated vocal opposition from both former APWU President William Burrus and a number of local Presidents. (i.e. NE Massachusetts, Olympia, WA, and Red Bank, NJ)  The opposition even has a Facebook page.

The Process after Rejection

So, given the opposition, it is not unreasonable to ask what happens if the contract is rejected.   While further negotiation is possible, it is more likely the next step would be interest arbitration.   If that occurs the APWU and the Postal Service will select an arbitrator by agreement or by striking from a list provided by the Federal Mediation and Conciliation Service. The arbitration hearings would be scheduled based on the arbitrator’s availability. In the past, such arbitrations generally have been held within a 4-8 month period after the arbitrator's selection.

Likely actions of Parties after Rejection

In arbitration both sides will have to present contract proposals from which the arbitrator will develop a settlement.   The rejection of the contract will likely force the APWU to propose fewer changes in the existing workrules and compensation structure than are contained in the proposed agreement.   Given the 4-8 month arbitration process will delay implementation of any contract changes that the Postal Service believes will reduce its costs, arbitration would force the Postal Service to propose even greater changes in work rules and lower compensation levels than contained in the current agreement.

Results of Arbitration Discretion


What the arbitrator would choose is open to speculation.   APWU members have little clarity regarding whether they would fare better in an arbitration proceeding that follows the rejection of this agreement than what is offered in the contract that they must vote upon.  Each arbitrator looks at the information in front of them independently and contract arbitration following the rejection of a contract by the vote of the rank and file is rare.  The 2007 arbitration that resulted in a NRLC - Postal Service contract followed the rejection of a contract by NRLC rank and file members.  That arbitration decision may provide some guidance as to how an arbitrator will develop his/her decision.

In particular, I would focus on this passage from page 6 of the Fishgold arbitration decision.   "Thus, I informed the parties that they might influence me to make marginal changes to the tentative agreement but certainly not changes of the sort sought by each side in their initial presentations."   If the arbitrator follows this approach in the APWU-Postal Service arbitration, he/she would restrict the APWU and the Postal Service to minimal changes to the contract being negotiated.

While contract provisions similar to what was negotiated would appear to be the most likely outcome of an arbitrator imposed contract, options that are more favorable to management or labor are not out the question.    However, given that an arbitrator would be ruling just before the Postal Service defaults on payments to the Office of Personnel Management and the Department of Labor, the odds of a labor favorable ruling would appear to be longer than a ruling that is more favorable to management.

Congress: The Wild Card

The real wild card in this process is Congress. The pace of legislation will likely preclude Congress from directly affecting an arbitrator's decision or the criteria they must consider in developing a contract but that will not prevent at least the House of Representatives from trying.   More importantly, rejection of the contract would push changes in Postal labor agreements at least 6 months ahead.   This could further sour changes that Republicans in Congress will take any action that resolve the disagreements over retirement obligations in the Postal Service's favor.

Consolidation and Excessing

One of the most confusing parts about the new APWU - Postal Service Contract is how the Postal Service deals with excess employees.    This is particularly important for employees affected by plant consolidations and declining single-piece first class mail.

Since the beginning of the fiscal year, the APWU website lists consolidations that involve 77 city pairs.      The 77 city pairs represent consolidations that are under study, approved but implementation has not been completed, and those now under review.   The 77 city pairs also include a couple where mail from the plant losing a processing option is being shifted to two or more other facilities.  

The median distance between the old facility and the new facility in this list is 70.1 miles.   Only 18% of all city pairs are less than 40 miles apart and 28% are less than fifty miles apart.   This means that when a consolidation occurs, jobs will shift to a facility that is further than the plant losing processing operations to one that is outside the 40 or 50 mile limits.  So what happens to those employees whose jobs are moved?

A similar problem exists as single-piece volume declines.   Demand for labor handling facing and cancelling and originating sortation operations decline is likely to decline at close to the 7-10% annual decline in single piece mail annual rate with declines in demand for labor sorting destination sortation being somewhat less.  The decline in demand for labor will create excess employees, so how will the Postal Service handle it.

The following discussion reflects the answer that Postmaster General Jack Potter gave when asked about excessing and the forty mile rule.  

Forty and Fifty Mile Rule

The goal of Postal Management will be to first find a job for all excess employees within forty mile radius and if that is not possible within a 50 mile radius.   To do so it will use the newly agreed to flexibility in work schedules that will increase the probability that a job will exist closer to home.  This flexibility could result in an employee choosing one of the follwing options:

• Traditional full time assignments.   In all likelihood there will be fewer standard 40 hour shift jobs than there will be employees that need to be accommodated within the 40 or 50 mile radius.
• Quasi-traditional full-time assigmments   Quasi-traditional full-time assignments will have between 40 and 44 hours guaranteed per week, between 6 and 10 hours on a given day and work  performed at one or more facilities on different days    So a full time clerk could work at more than one retail facility on different days as long as the different facilities are within the 40 or 50 mile radius agreed to in the contract.  Their  work schedule could include the following: 5 eight-hour shifts, 4 ten-hour shifts; 2 six-hour and 3-10 hour shifts, as well as any combination of shifts between 6 and 10 hours such that the total number of hours in a week is between 40 and 44 and no shift is less than 6 hours and no shift is more than 10 hours.  Also a clerk may work in a plant on heavy days and shift to a station or branch on days that there is less volume to process..
• Non-traditional full time assignments.  Employees can choose a non-traditional full time assignment.  They are similar to quasi-traditional but allow even more flexibility in scheduling as the total number of hours in the week can range between 30 and 48 hours and shifts can be as short as 4 hours and as long as 12 hours.   Employees who choose non-traditioanl assignments will have fewer hours during slower months in the summer and more hours in heavy mailing season between September and December. 
• Shift Craft  Clerks wanting to stay within the forty or fifty mile radius of the facility that is losing jobs will have the option to shift craft and work as a letter carrier.   (It was unclear from what Postmaster General Donahoe said whether the shift is only letter carriers but includes rural carriers as well.
• Transfer beyond 40 miles.  If no jobs exist within the 40 or 50 mile radius an employee may find that his only employment option with the Postal Service is a job that is in a city more than 50 miles away.   

The list of options suggests that the number of traditional full-time assignments and quasi-traditional full-time assignments may be less than the number of employees that the number of employees within a 40 mile radius prior to consolidation.  The Postal Service expects that some clerks will voluntarily take a non-traditional full-time assignment willingly, decide to move to the facility that is now processing the mail or transfer to a different craft to ensure that any employee that wants a job within the 40 mile radius will find one.   In addition, the Postal Service expects that some employees will decide to retire or find other employment as was the case in LIma Ohio when operatins were consolidated into the Toledo plant around 80 miles away.  

Conclusion

The new 40 mile rule combined with the new definitions of full time (i.e. quasi-traditional, and non-traditional) will give the Postal Service significantly greater flexibilty to deal with scheduling employees whose current work is no longer needed.   The total number of employees required to fill staffing needs will be fewer.  If a significant number of employees voluntarilly take a non-traditional full-time position, they could provide better retail services and speedier mail processing during the heaviest mailing periods without needing to hire seasonal employees.   Without having seen any of the Postal Service's scheduling models, the changes suggest that

For Postal Service Employees, the new quasi-traditional and non-traditional full time positions create more opportunities for them to find a job close to the plant that is losing its mail processing operations and therefore it is an improvement over the current contract during periods of consolidation and declining volumes.   Employees should realize that the agreement did not change the fact that some employees will still not find jobs within 40 miles and and their options will remain similar to what now exists under the current contract.  

Both the APWU and the Postal Service are going to have to work together to help employees supervisors, and Postal management handle the transition to a world where schedules are no longer the same every day and employees are working at more than one facility during a week.   This is a big change that will take some getting used to and cooperation will be needed to ensure that misunderstandings are minimized. 

Update 3/4/11 5:07 pm

The APWU in its most recent set of questions and answers about the contract confirms my understanding that the Postal Service will be setting up non-traditional full-time assignments that will be attractive to employees currently working in a traditional full-time assignment.  (This is what is described above as a quasi-traditional full time position.)

Question: Can traditional full- time assignments (eight-hour days, five days per week) be converted to non-traditional assignments?



Answer: Management can repost occupied traditional full-time assignments as non-traditional assignments as service needs require; however, in doing so, management will have to make certain that the new assignments are attractive enough so that somebody bids them. No current full-time employee can be involuntarily assigned to an assignment of less than 40 hours or more than 44 hours in a service week.

The same set of questions and answers suggests that many employees will prefer a non-traditional full time position if it allows them to continue to work close to home.
Question: I was excessed in 2009 and moved 200 miles from home. Can I get back home with the new 30-hour job? I have been looking on eReasign for two years.



Answer: Any new or vacant full-time assignments (traditional or non-traditional) created in your home office will have to be posted for bid. Provided you exercised your retreat rights and continue to maintain them, you will be eligible to return to any posted vacancy based on your seniority.

Why the April 5th Hearing is Important

The quotes from Congressmen Darrell Issa and Dennis Ross that have been quoted in the press have all come from  a press release of  the House Oversight and Government Reform Committee.    Most articles ignored the following quote "This hearing will establish an important baseline for Congress' upcoming work on the Postal Service's structure, fiscal health and self-governance," from Congressman Darrell Issa that better than anything so far lays out the issues that the committee will look at in regards to the Postal Service.  These are:

• Postal Service's structure - this most likely focuses on the management structure as well as questions regarding the network of processing plants and retail outlets, the use of contractors, work sharing, civil service employment law and how it applies to the Postal Service, and labor relations issues including the current collective bargaining process
• Postal Service's fiscal health - the focus here is clearly the prospects of the Postal Service being financially self-sufficient.   This will likely include the question, "Can the Postal Service be self-sufficient and pay the retiree benefit liability obligations currently required by law?"
• Postal Service Self Governance - the focus here is the Postal Service's business model.   Here the committee will likely focus on the Board of Governors and senior management looking to see if the current structure gives the proper incentives to ensure financial self-sufficiency.   The focus on the business model will need to include returning to a government department model as well as corporatization and privatization models employed outside of the United States. 

The hearing on April 5th will be a full committee hearing.  As a full committee meeting, the review of the APWU contract will get broader coverage on the 24 hour news channels, other print and broadcast media, on talk-radio and the blogosphere.   This could raise the Postal Service up a notch or two on the national policy debate.   How that affects the ability of Congress to find a solution that solves the Postal Service's problems is anyone's guess.

Why Didn't APWU Compensation Go Down?

Government Executive and Federal Times both reported today that the House Oversight and Government Reform Committee will be holding a hearing on April 5 on Postal Service pay.   It is clear from quotes attributed to Congressmen Darrell Issa and Dennis Ross that the Postal Service's witness is going to have a very unpleasant time. 

The Postal Service should expect a grilling from members of both parties in Congress.   Congress is the representative of the shareholder and the two largest creditors facing the prospect that their bills for over $5.5 billion will not be paid next fall and similar bills in future years may not be paid.  If the Postal Service takes actions that do not reduce the non-payment risk of those payments due next fall and ones due in future years than Congress is within its right to raise questions as to whether the current Board of Governors needs to be replaced and could even put the new Postmaster General and his management team at risk of replacement.  
The grilling that the Postal Service faces will likely ask one question repeatedly.  Why was the Postal Service willing to sign any contract that did not freeze or reduce the compensation of current APWU members if APWU members enjoy a significant wage premium?  

This will be the central question because testimony was presented by Michael Wachter in 2003 to the President's Commission that stated Postal Service employees enjoyed a 34.2% wage premium has been quoted by Representative Dennis Ross as the basis for his concern that the Postal Service was not tough enough in negotiating the APWU contract.  Dissapointment with the agreement was also expressed by Congressman Darrel Issa who stated "The union contract renewals are the best chance to find new savings. Unfortunately, this looks like a missed opportunity. The Postal Service must show Congress and the American people that it can pay its own way, because the numbers do not seem to add up."


These comments reflect real concern because it is not clear if the Postal Service will have the money to pay the wage increases to current employees in 2012 through the end of the contract.   However, it is not clear that going to arbitration would have produced a more favorable settlement for the Postal Service, even if it presented new testimony of Dr. Michael Wachter that continued to show a wage premium of a similar magnitude.  Having looked at the challenges of unionized firms facing the need to reduce compensation expenses in order to remain competitive found few firms that were able to do this outside of bankruptcy regardless of whether negotiations were conducted under the Railway Labor Act or the National Labor Relations Act.   Even firms without unions find it difficult to impose significant pay cuts on current employees, although it was not uncommon during the last recession for non-union firms to both increase the share of health care premiums paid by employees and eliminate the match to 401-K plans.   Many of these companies have restored these benefits as the recession ended. 
 
The House committee has two options in looking at the compensation question.  The easy way is to bash Postal Service management and grab headlines by focusing only on the wage premium issue.  A more constructive alternative would look at what would be required to bring compensation closer in line to market values.   To do that they need to look at the following questions:

1. Update the Wachter study and include analyses that look at alternative alternative approaches to this question.  
2. Update the Wachter study using the compensation of APWU members under various scenarios under which increasing proportions of APWU members are employed under the new compensation schedules, employee classifications and work rules.
3. Examine the impact of the contract provisions that increase flexibility that allow the Postal Service to eliminate the cost of contracted services for work that an APWU member could do for 2 to 4 hours within a longer shift.  
4. Similarly, what is the difference in cost between using an APWU member and the non-union employee that the Postal Service is planning to displace?
5. Examine the options the Postal Service has to convince existing APWU members to retire.   A large share if not the majority of APWU members are at the highest pay step for the type of work that they do.   Replacing these employees that are earning the highest availalble salary with those who are new would significantly cut costs.   
   
   In particular, the committee needs to ask two questions here.  First, what proportion of APWU members, other postal unions, and management employees are eligible to retire now?  Second, what is the increase in the retirement rate if a VERA is introduced and for retirement incentives ranging between 5,000 and a half year's salary?  The answer to these questions would help illustrate the type of incentive necessary to increase the attrition rate to a level high enough to significantly cut compensation.
6. Examine the arbitration process in order to determine the probability whether the Postal Service would have been generated a better result than what the Postal Service agreed to using either current law or changes suggested by Senator Susan Collins.  This examination should also determine whether alternative approaches allowed by the National Labor Relations Act or Railway Act could have produced a result that would have had frozen or reduced the compensation of APWU employees without the threat of barnkrutcy or liquidataion.

If the committee concludes after asking these questions that the APWU contract and similar negotiated contracts with other unions as well as contracts that arbitration would produce would still be unaffordable, then it must determine if the more drastic option only available to firms in bankruptcy should be pursued.   That would allow the Postal Service to break existing labor agreements and impose lower cost compensation schedules.  In doing so, the committee has to ask how much this option would disrupt the mail delivery system and the probability that the Postal Service will have a business that can generate the cash over the next thirty years to cover its payments on retirement liabilities.

Is Arbitration Better for the Postal Service?

Many of the readers of the blog have raised the questions as to whether the Postal Service would have been better served going to arbitration. In a comment to another post a reader provided a history of  previous contracts that were sent to arbitration,   The picture is not pretty.

• 1978 -1981 James Healy rules in favor of unions on COLAs (no cap) and partially in favor of management on no lay-off clause, which is changed prospectively to cover only employees with a minimum of six years of service. Total increases of 31%
• 1984-1987 Clark Kerr rules in favor of unions with penalty overtime over 10hrs, continuation of COLA. Total increases of 13%
• 1990 – 1994 Richard Mittenthal rules in favor of Transitional Employees and Arbitrator Valtin decided the issue of health benefits which resulted in a 4% increase in employees’ share of healthcare cost. Total increases of 12%
• 1994 – 1998 Jack Clarke imposed a four-year agreement with COLA Roll-in. Total increases of 6.25%
• 2000 – 2003 Stephen Goldberg rules in favor of a 3 yr agreement. Total increases of 6.49%

These results are taken from a fact sheet, "A History of Postal Worker Salaries,"  that the APWU developed review the results of all contract settlements including those that were settled through negotiations and those that were settled in arbitration. 
 
The only paper on this topic "Labor Market Outcomes of Postal Reorganization" by D. Richard Froelke, the former manager of collective bargaining for the U.S. Postal Service was published in the book Mail @ the Millennium, edited by Edward Hudgins and published by the Cato Institute.  This paper provides more detail on labor negotiations through the year 2000.   Most importantly, this paper indicates that the problems in wage and benefit levels reflect the continuation of contract provisions and an understanding of pay compatibility that existed in the 1970's that has been nearly imposible to remove in either a negotiated or arbitrated settlement.   The list of arbitrated settlements above, which are described in more detail in the Mr. Froelke's article illustrates that eliminating wage premiums and restrictive work rules in arbitration did not occur even after the Postal Service began presenting significant evidence to an arbitrator regarding the need to control compensation costs.
 
Finally, it is worth noting that many who argued prior to passage of the Postal Accountability and Enhancement Act that steps were needed to constrain wages made recommendations that are not much different than contract provisions in the APWU contract.   For example, Michael Schuyler, Senior Economist at the Institute for Research in the Economics of Taxation made the following recommendations in the paper, "How to Bring Postal Compensation into Line With The Private Sector," a paper published in 2003.

• Increase postal compensation at the rate of inflation until the postal pay premium is reduced or eliminated.
• Increase postal pay more slowly than increases in an index of private sector labor costs to gradually reduce the postal pay premium. 
• Restrain postal wages when the postal worker quit rate is very low or the number of qualified people seeking postal jobs is very high.
• Vary postal wages by geographic region.
• Increase the use of part-time and temporary employees who would receive market or above-market compensation but less of a pay premium than full-time career employees.

With the exception of varying pay by geographic region, the APWU contract goes further than the suggestions made by Mr. Schuyler as it imposes, for non-career and new full time employees, a pay schedule and a definition of a full-time job that most likely closely matches market compensation and work rules for the work that APWU members perform.  The cost of getting the market based compensation and workrules for new employees  is a limit on wage increases for current employees to increases that follow his suggestions.   If the Postal Service can increase the pace of retirement of current APWU members, then I am willing to bet he and others that have written about a pay premium would agree that the trade-off represents a reasonable deal for both sides.

Compensation Comparison Chart

Thanks to my readers I was able to create a chart comparing Postal Service compensation to compensation at FedEx Express and United Parcel Service.  As all readers know FedEx Express is non-union UPS is organized by the Teamsters and the Postal Service is organized by one of four craft unions.  The Postal Service compensation figures are from 2009 and were provided by the Postal Service to reporters prior to beginning of negotiations with APWU and NRLC.

The comparison's are a bit disingenuous for the APWU includes a number of maintenance crafts that are higher paid then the most employees that sort mail.  Therefore a fairer comparison would compare the average compensation of employees that sort mail or work at a retail counter with the wages paid UPS and FedEx inside workers.   

The comparisons illustrates why the compensation levels negotiated with the APWU for new employees and non-career positions have much lower wages.   It is clear that the new wage structure should bring APWU members that sort mail or work a retail counter to an average compensation level that will fall between what FedEx and UPS now pay.   If one assumes that UPS and FedEx employees see increases in compensation in the next few years, either due to contract provisions or increases reflecting improving business at both firms, then it is possible that by the end of the contract, APWU average compensation will likely be closer to what FedEx will pay its employees than what UPS will.

In many ways, Mailhandler union members face a worse comparison that APWU members.   Few of their employees are in maintenance and other positions that generate higher salaries.   Therefore, their average salary is likely further above market rates than APWU members.   Therefore, the contract that they will negotiate next fall will likely have all of the changes in work rules and pay schedules that the APWU just agreed to.  They may find it more difficult to negotiate any protections for current employees that the APWU did.

For members of the NALC and NRLC unions the comparison is a bit more complicated.   Their current compensation falls between UPS and FedEx compensation levels.   However, Postal Service is seeing its volumes decline while UPS and FedEx volumes are growing.  Also determining what is a fair wage for the delivery portion of the service depends on an estimate of the value of the delivery service alone and the division of revenue for all activities other than delivery and delivery.   Only after that is conducted would it be clear whether the compensation paid to Postal Service carriers is at, above, or below market rates. 

The difficulty of doing a comparison with compensation of the NRLC members most likely explained why the NRLC was not willing to continue to negotiate.  They most likely face a lower risk of an adverse ruling in arbitration than APWU members as the economic case of the Postal Service is much more complicated in that negotiation.

Comments and suggested additions to this table are requested.   They will be added to the table and posted when received.

Comparing Benefits to the Private Sector

Most of the comparisons made on health benefits compare what the Postal Service offers to what other Federal Employees receive.  There are two parts of this benefit.   First there are benefits that exist while a person is working for the Postal Service.  The second are benefits that accrued while the person works but are payable when they retire. 

A similar comparison needs to be made on retirement benefits.  While up until the signing of the APWU contract the retirement benefit structure of Postal Service and other federal government employees is the same, it is not clear if the hourly cost per employee is the same as the mix of employees in CSRS and FERS may differ and the contribution rates of Postal Service and Federal Government employees into retirement programs with an employer match may also differ

Postal employees like UPS's teamster employees have both pre- and post-retirement health benefits.   FedEx employees only have health benefits while they are working for FedEx.

United Parcel Service has a defined benefit pension plan for most of its Teamster employees.  (Those teamsters who participate in the Western States Teamster Pension plan have a hybrid between a defined contribution and defined benefit pension plan.)  FedEx offers a retirement plan that includes a defined contribution pension and a 401-K plan which had recently seen its corporate match restored.   The Postal Service retains its defined benefit pension for employees hired before 1975 and has a plan similar to what FedEx offers for employees hired since then.   The new APWU creates a new retirement plan for non-career employees which is a 401-K plan without an employer match.

As I noted in the post displaying the information from the Teamster Union comparing FedEx and UPS wages and compensation, no comparison has been made comparing these wages and benefits to what the Postal Service offers recently.   

One of the biggest complaints about Postal compensation being too high relates to the fact that its share of the health insurance costs is higher than what other Federal agencies pay.   The estimate of FedEx costs for health and pension costs of $3.33 gives a benchmark that can be used to compare costs that the Postal Service offers to employees hired since 1975 1984.  (Given that this is 36 27 years ago it must include most current employees.)   (Correction made 1/21/2011 12:40 p.m.)

Under the current APWU contract the Postal Service pays 81% of the total insurance cost.   With the figures supplied in the APWU PowerPoint, this works out to $517.80 per month average.  If one assumes that an APWU member is employed for 2080 hours in a year then the hourly cost of his health insurance is $2.99.  If this was reduced to the 72% of the insurance premium paid for federal workers, the hourly cost of health insurance would drop $0.33 per hour to $2.66.  The APWU contract reduces the hourly cost to $2.80 or $0.19 per hour by the end of the contract. (This assumes no health inflation, so it is possible that the cost per hour at the end of the contract will be higher even if the Postal Service's share is lower.)

The difference of a few pennies is small but significant.  Reducing health insurance costs by a cent per hour saves the Postal Service $12 million corporate wide annually.   The impact of a similar cut for just APWU members is likely around $4 million annually. 

What this exercise shows though is that while cutting the Postal Service's share of its health care insurance contribution will reduce costs, discussing this issue may have more merit in scoring political points than solving the severe financial problems of the Postal Service.   Even an immediate shift to federal employee levels of insurance contribution would not be enough to get compensation levels down to the point that the Postal Service can be self-sustaining.   It is time for those who focus on this issue to look at additional options, including many contained in the APWU contract to do the job.

Is the APWU Contract a Union Giveaway?

In an editorial today, the Pittsburgh Tribune - Review stated that the Postal Service's contract with the APWU does little more than "sustains the stagnant status quo."  The editorial reflects an understanding of the details of the contract that would come from doing no more research that reading the press releases issued by the Postal Service and the APWU when the contract was signed.    As this information primarily was designed to promote the contract to APWU members that must vote on the agreement, the Pittsburg Tribune's impression of the contract is understandable.

The Pittsburg Tribune-Review's editorial illustrates the problem that the Postal Service created because it did not recognize that it had to sell the contract to Congress, influential news media, and its customers.  The Postal Service needs the support of all three if the rest of its restructuring programs are to be approved.  For example, why would a member of Congress acquiesce to the closure of a local processing plant or accept 5-day delivery, or modify the payment terms on retiree obligations if they believed that the Postal Service did not do all it could to reduce its compensation costs and excess employees.

The truth is no one knows whether the contract is good for the short-term and long-term financial health of the Postal Service.  The analysis in the post, Is the APWU Contract Good for Shareholders and Creditors?, clearly shows that the contract will benefit the Postal Service financially if the proportion of APWU members that are working under the new definition of full time and new pay schedules grows quickly.   If turnover is only occurs at normal attrition rates, then the Pittsburgh Tribune-Review may be right, the contract may do no more than sustain the status quo.  If however, the Postal Service can offer sufficient incentives to get older APWU members to retire, and excess APWU members in plants and retail offices being closed or consolidated to retire or seek employment elsewhere, then the contract could reducing its operating costs.

The Postal Service needs to quickly adjust course and explain to the public in detail why the contract is good for them and what they will be doing to accelerate the proportion of APWU members working under the new contract rules.   On March 25th they will have an announcement announcing a limited number of cuts in non-union positions.    While this is a step in the right direction, the Postal Service's presentation will unlikely still its critics that the Postal Service is not moving fast enough to bring costs in line with revenue.     More information is needed soon or the Postal Service will soon find that it has lost control of its destiny.

Comparable Wages

One of the challenges in trying to figure out whether the Postal Service has signed a financially responsible contract is that there are few good figures available regarding what are market wages for the work that APWU members do.    The Teamsters Union have recently posted in UPS Teamster Update a comparison of UPS and FedEx Express employee wages.   I have pulled out the two categories that are comparable to work that APWU members do.   The figures below only include health and welfare and pension benefits and do not inclde compensation costs for employment and unemployment taxes and workers compensation insurance.

The hourly rates are comparable to information that I have seen elsewhere.   They indicate the wages that efficient operators can offer.   The new contract should move average APWU wages within the range listed here once a significant portion of current APWU members retire.

The benefit costs here include both health care and pension benefits.  UPS has a very generous benefit package for most employees which includes a defined benefit pension and 0% employee contribution for health care benefits for full time employees.   Most part time UPS employees  likely have less generous benefits than the "average" benefit.   Turnover of part-time workers is high so many do not accrue pension benefits and their health care benefits are not as generous as those for full time employees.   UPS offers part-time employees a number of non-traditional benefits as well, most notably tuition assistance in the form of loans and grants.

The average hourly benefits listed in the chart for full time FedEx employees most likely underestimates the benefits full time employees receive.   At $3.33 per hour the benefit listed for full time worker would be the equivalent of a company contribution of $577.22 for health benefits every month.   This would appear to be the figure that FedEx pays as its contribution for single employees.  In addition to health care benefits FedEx offers its employees a defined contribution pension as well as a 401-K plan with a match.   The $3.33 figure appears too low to include the hourly cost of  retirement benefits. 

The wages and benefits listed above are paid by companies that profitably provide parcel delivery services. These companies are both known for the efficiency of their operations and their ability to deploy capital to most efficiently use the labor sorting parcels and transporting parcels between facilities.  These two carriers are also now facing rising demand for their services to the point that they are able to raise prices to both customers that pay list prices and those that negotiate rates at discounts to list rices.  

The Postal Service faces a different operating and competitive landscape.   It has significant production and transportation overcapacity and public notice processes that discourages the elimination of this overcapacity, declining volumes and revenue, limited capital to improve the efficiency of its network, regulatory constraints that prevent rational pricing and competitive constraints that prevent it from extending its product line to generate more revenue per item delivered.  These constraints make it difficult for the Postal Service to pay market rates of compensation that one must assume are within the ranges shown above.   The sooner these constraints are removed, the sooner APWU members can be assured that their compensation will fall within the ranges listed above, otherwise they can expect that compensation levels in future contracts will have their members fall behind wages paid in the private sector.

Is the APWU Contract Good for Creditors and Shareholders?

Up till now all of the information about the new 4 1/2 year agreement between the American Postal Workers Union (APWU) and the Postal Service has come from the union.  With an agreement in hand, the union needs to sell its members that the contract is good for them so that rank and file members approve it.  The APWU has an aggressive effort to sell the contract to members which has included so far the APWU news bulletin on the contract, a PowerPoint presentation, a Web post answering questions, as well as the use of Facebook and Twitter.   Given the amount of information coming from the union, no one should be surprised that press reports in the Washington Post, Direct Marketing News, and most other news outlets focus on what employees got from the agreement and ignore the benefits that agreement provide the Postal Service.

If the Postal Service was a public company with shareholders and bondholders it would now be making an aggressive, and in most cases a public effort, trying to explain to them why this agreement is good for shareholders and bondholders.   This effort would include briefings with investment analysts and the business press.  It has not done that even though Congress effectively acts as the representative of the Postal Service's shareholder and its largest creditors, the Office of Personnel Management and the Department of Labor.  Congress's role as the representative of the creditor should be of particular interest as the Postal Service has already stated that it will default on these obligations.

The Postal Service's press release uses only 74 words to explain why the contract improves its financial situation.    Without a greater effort, the Postal Service leaves the impression that the contract was a giveaway to employees that will make necessary improvements in its cost structure.   Private sector stakeholders whose businesses and jobs depend on the long-term survival of the Postal Service should be concerned that this effort has not been made as their future may depend on Congressional actions to reform the Postal Service's business model and adjust the Postal Service's retirement obligations.

To fill in this vacuum, this rest of this post will review the public information on the Postal Service - APWU contract and identify how provisions in the contract will affect the Postal Service's cost structure.  

New Definition of Full Time Employee

All employees will operate under new rules defining what constitutes a full time schedule.  These new rules give the Postal Service a significant increase in flexibility in scheduling employees.  

• New employees hired after signing of the current contract
• Employees are only guaranteed 30 hours per week and can work as much as 48 hours per week
• Shift on any day can be as few as 4 hours and as many as 12 hours.
• Split shifts will exist only in Post Offices level 20 and below.
•  Current employees:
• Full time employment is defined as between 40 and 44 hours per week
• Shifts can have as few as 6 hours and will could have as many as 12 hours;
• a week must have at least 2 days off (a schedule with four 6 hour days and two 8 hour days would not be permitted)
• Current full time regular employees can voluntarily agree to work under the new definition of "full time" that applies to new employees.

Conclusion:  The new contract gives the Postal Servicie more flexibility to match hours to actual work.   The speed at which it can have a workforce that works under the new definition of "full-time employment," will determine how much these changes save the Postal Service.

New Employee Classification

Non-Career Assistants replace casual and transitional employees.  This new class of employees will represent up to 20% of all APWU members not in the Maintenance and Motor Vehicle Crafts.  The new class of employees will represent 10% of Maintenance and Motor Vehicle Crafts.  These employees will have a different pay schedule and employment relationship with the Postal Service than current employees have.

• Non-career Assistants are hired for only 360 day assignments.  (This is equivalent to a contract that last for only 51 of the 52 weeks in the year.)  It is unclear regarding what the Postal Service obligations are to rehire Non-career Assistants after the contract expires but it an employee is good it is unlikely and there is work it is unlikely that the USPS will refuse to renew the contract.
• Additional pay steps were added for Non-career Assistants with lower starting salaries than what now exists.  On average, starting salaries for Non-career Assistants will be 15% below current starting salaries and it will take new employees between 6 and 8 steps to earn the current starting salaries.
• 12.4% of all APWU members will be paid at the lowest rate when the contract starts.
• Non-career Assistants have lower benefits that current full-time regular employees
• Health care benefits require 1 year of employment
• USPS will only pay 75% of the PWU Consumer Driven Plan premium for these employees.   (This is 11% below what the Postal Service will pay for full time regular employees)
• Retirement benefits will be limited to a 401-K plan that does not have matching funds. (The retirement benefit should provide significant savings over FERS.  It is unclear from information provided what happens if these employees become full-time regular employees.)
• Non career assistants will accrue leave.  However, it is unclear whether they will accrue leave at the same rate as current APWU members
• Non career assistants will have a "full-time" job as described above

Conclusion: The difference in wage and benefit levels make Non-career Assistants significantly cheaper than current employees.  The sooner the Postal Service can maximize its use of Non-Career Assistants the faster it will be able to lower the costs of work performed by APWU members.

Wage Levels

• Wage levels for current APWU members are frozen at current levels until November 17, 2012.
• Wages of current casual and transitional employees who are hired as Non-carrier assistants will rise to fit equivalent levels on the Non-Carrier Assistant schedule.
• All employees hired after the contract is signed starts at a lower rate than now exists.
• All employees hired after the contract is signed have a lower top salary than current employees even after they become career employees.
• New hires have to progress between 6 and 8 steps before they reach the current starting salary levels of APWU employees. Her are few examples:
• Grade 3 - Starting salary drops from $16.74 to $12.34 per hour (-26%)
• Grade 4 - Starting salary drops from $16.82 to $12.95 per hour (-23%)
• Grade 5 - Starting salary drops from $18.65 to $15.91 per hour (-15%)
• Grade 8 - Starting salary drops from $20.80 to $18.20 per hour (-12%)
• Wage increases after that point will come on the following schedule
• November 17, 2012 - 1% increase
• March, 2013 - COLA increase based on COLA calculated for implementation in March 2012 and COLA calculated for March 2013
• September 2013 - COLA increase based on COLA calculated for implementation in September 2012 and COLA calculated for September 2013
• November 17, 2013 - 1.5% increase
• March, 2014 - COLA increase based on COLA calculated for  implementation in March, 2014
• March, 2014 - COLA increase based on COLA calculated for implementation in March, 2014
• November 17, 2014 - 1.5% increase
• March, 2015 - COLA increase based on COLA calculated for implementation in March, 2015

Conclusion:   Wage increases for current APWU members are back-loaded.   The increases will benefit the Postal Service if over the life of the contract, the proportion of employees that are working under the new wage schedule increases so that the average increase in compensation per employee will be less than the wage increases agreed upon.  Also, an increase in the number of employees operating under the new definition of "full-time" could on average reduce the number of hours paid per employee further reducing labor costs.

Update 3/17/2011 4:25pm :   A comment was made that may clarify a rather confusion explanation of who gets paid what.   The Non Career Assistants do not see step increases like career employees.  The saaries identified above are the steps for career employees.  Level 5 Non Career Assistants start at $13.74 per hour which is less than the starting salary for career employees listed above.

Non-traditional Jobs

The APWU- Postal Service contract shifts at least 9,000 jobs from contractors and EAS personnel to APWU members.  This provision of the contract includes a number of provisions that the APWU and the Postal Service agreed upon that increases opportunities for APWU members, creates opportunities for higher level APWU positions (called lead clerks), and increases flexibility in defining an employee's duties.

The major changes include:

• A shift of jobs from Postmasters, supervisors, and other administrative and technical positions to APWU members.
• Many of these jobs will be handled by employees working in a new "Lead Clerk" position.
• The Postal Service will have greater flexibility in scheduling employees to perform facility maintenance
• Maintenance employees will be assigned on an installation basis and not a facility basis.  This more than likely means that maintenance employees may work at more than one facility during a day or week.
• Maintenance activities requiring less than 2 hours per day in a facility may be assigned to an APWU member who has other job responsibilities the rest of his day.
• Some maintenance supervisory jobs will become APWU member jobs and will mostly be filled by a person in one of the new "Lead Clerk" positions.

Conclusion: All of the non-traditional jobs and changes to job descriptions relating to maintenance employees are likely based on suggestions made by the APWU as a method to increase its membership while at the same time reducing Postal Service Costs.   It is clear from the language of the public documents that the APWU will be actively looking at ways to structure work by APWU members so that work performed by union employees is cheaper than either contractors or non-union employees.   This could represent a radical change in how the Postal Service and APWU work together to manage operations.

Limits on Excessing

The APWU and the Postal Service have agreed to limit excessing outside of an installation or craft to r0 miles in most cases and no more than 50 miles in any case.   The contract information is unclear as to what happens if there are no jobs for an excessed employee within that area. The News Bulletin states that "the parties will jointly determine what steps will be taken."  The PowerPoint presentation mentions that there is a memorandum associated with this provision but it is not public.

Conclusion:   It is unclear what impact this will have on either employees that face excessing or the Postal Service.  A good example is consolidation of facilities that are more than 50 miles from the facility that will now be sorting the mail.   This will occur in West Virginia and in most consolidation efforts outside of metropolitan areas.   Most likely the sides decided to sign a contract on all issues that they can agree on and let this issue wait for further negotiations.

 Excessing employees create challenges especially if excess employees cannot be let go.   The only other alternative is a localized early retirement program that would only apply to geographic areas where there will be excess employees.

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This review of the APWU - Postal Service contract indicates that the new contract will allow the Postal Service to significantly cut its costs over the life of the contract.   The amount it saves depends upon how quickly it can raise the proportion of APWU members that are Non-career Assistants, implement the changes in maintenance job descriptions that should cut maintenance contracting and shift jobs from supervisors, postmasters, and other non-union employees to APWU members.

The Postal Service needs to provide the hard numbers that must exist that show the cost savings that I believe exist to its creditor and shareholder representatives in Congress as well its customers.  In addition they need to show how quickly these savings will accrue including the difference in costs over the current contract from fiscal year 2011 through 2015.   Finally, they need to show how those cost savings could change if it offered a VERA or had the cash to offer retirement incentives on either a nationwide or local basis.

The APWU Contract and How the Process Compares

One of the problems the Postal Service will have in selling the contract with the American Postal Workers Union is the number of new members of Congress with limited understanding regarding the impact of differences in labor law between the law covering the Postal Service and either the National Labor Relations Act or the Railway Labor Act.   In addition many members of Congress will find it difficult to understand why the Postal Service did not take the approach that Wisconsin Governor Walker took with public employees, or President Reagan took with air traffic controllers.


The Postal Service did not have the option to decertify the union as President Regan did as members of the APWU never stopped working after the contract expired. Nor could the Postal Service unilaterally force cuts in compensation as it is not in a legal position that would allow it to break existing contracts and impose contract terms that it would prefer.  A good summary of the negotiation process has been provided by the Postal Service.

Better comparisons are recent negotiations between the Teamsters and both United Parcel Service and Yellow Roadway working under the Labor Relations Act and Conrail that had to renegotiate under the Railway Labor Act.   The following is a brief review of what happened in each of these three examples.

Over the past two decades, United Parcel Service has faced increased competition from FedEx with underfunded multiemployer pension plans sitting over its head. It took a strike in 1997 over the pension issue but eventually had to concede its demand for pension and other contract changes.  Its concessions came once UPS management recognized that the strike gave FedEx an opportunity to prove that FedEx Ground was a credible competitor to UPS Ground service and that the changed perspective would make maintaining marketshare more difficult than before the strike began.   UPS changed its approach to working with its union over the next decade which resulted in a contract in 2007 that allowed UPS to withdraw from the largest underfunded multiemployer plan and make important changes in work-rules and wages that made its operating costs competitive with that offered by FedEx even though FedEx provided service through non-union employees and contractors.
Yellow-Roadway has faced a combination of expanded competition of non-union competitors and a major decline in the nationwide transportation in less-than-truckload market that forced it to combine the operations of its two largest LTL subsidiaries and shutter others. It had also been near bankruptcy for most of the last five years. During this period it had to renegotiate terms of loans multiple times and its stock value plummited to near zero. Yellow Roadway renegotiated its Teamsters contract in 2008 under pressure from creditors However, the problem worsened for Yellow-Roadway when the recession hit and its continuing operations required a second round of compensation reductions with the alternative being liquidation of the business. A new round of cuts were negotiated and agreed upon in 2010 in an effort to save the company. During this period the company cut the number of Teamster employees from 40,000 to 25,000. Even these cuts may not be sufficient to prevent bankruptcy as on March 14, Yellow Roadway stated that it failed to meet a creditor milestone that would allow its creditors to demand full repayment of all loans due.

Conrail faced a different problem in its negotiations as the Railway Labor Act created an environment that forced it to maintain existing contract provisions until a new agreement could be signed. It could have declared bankruptcy which would have allowed it to impose new contracts as has occurred among passenger airlines, but at that time its creditors would have demanded liquidation and would not have supported continuing rail operations under any labor agreement. In addition, political opposition to liquidation was significant as liquidation would have had a significant impact on economic activity from St. Louis to Boston disrupting the ability of the automotive, electric utility and other industries that depended on rail freight service to conduct their business as well as the economies of cities in the from Boston to Washington DC that depended on Conrail operated commuter rail to transport employees to work. Conrail was then forced into a period of extended negotiation with its unions primarily over the elimination of workrules and positions that no longer made sense in a world of diesel locomotive engines. It took almost 8 years to get the changes needed to make Conrail profitable which eventually allowed it to be sold to the public in a public offering.

In all three cases, getting the changes neccessary for a company to survive only occurred once employees were convinced that they had no other options but concede.   For both UPS and Conrail, it took nearly a decade for the changes to be implemented once they were identified.   For Yellow-Roadway, it took less time but the final concession occurred only after multiple reductions in Yellow-Roadway's Teamster employees and the threat of liquidation and loss of all jobs hung over union members' heads.

The Postal Service is in a financial position similar to Yellow-Roadway and a competitive posistion that is closer to what faced both United Parcel Service and Conrail.   Finally, in terms of labor-management relationships, the agreement process has significant similarities to how the Teamsters worked together with UPS, and Yellow Roadway to convince members to accept and implement contract changes.

While its financial position puts it on the brink of default on its obligations to its creditors, creditors have not threatened liquidation like Yellow-Roadway creditors did. 

By eliminating liquidation as an option, the Postal Service is in a position similar to Conrail and must negotiate a contract without the ultimate threat over negotiators from its unions.   The Postal Service is in a better position than Conrail as the threat of binding arbitration, even under current rules forces a time limit to negotiations and existing contract terms.

The Postal Service's position is similar to United Parcel Service as the Postal Service would be hurt by any shut downs, or even slowdowns due to a work-to-rule environment just like United Parcel Service's competitive position was hurt by taking a hard line accepting a strike in 2007.  

The Postal Service's decision to come to negotiate an agreement rather than having one imposed by an arbitrator makes selling changes that would have been included in an imposed agreement easier as the APWU will act a willing partner in implementation, a position that it would not have taken as willingly if similar contract provisions were imposed.  As a partner in implementation, APWU is acting in a manner similar to the Teamster which worked closely with members to explain why changes were required and why changes were best in the long-term interest of employees at UPS and Yellow-Roadway as well as working with UPS and Yellow Roadway to design and implement changes.