The Economic Effects of Postal Reorganization

Abstract

In this paper, I examine the effects of the Postal Reorganization Act of 1970. In passing the Act, Congress hoped to increase postal productivity, decrease dependence on government assistance, and help the Postal Service break-even, while keeping wages comparable to those in the private sector. Researchers have examined various aspects of postal operation, but few have focused on the effects of reorganization per se. Utilizing data on 21 variables from 1930 to 1996, I estimate reorganization's effects using time-series tests for structural change proposed in Econometrica by Pierre Perron. I describe the technique and examine reorganization's effects on the price of various classes of mail, employment, relative salaries, productivity, and profitability. I find that the Act did not increase overall real mail prices, but increased first-class while decreasing fourth-class prices. While there is a strong positive time-trend in postal employment (both absolutely and relative to population), the Act did not exacerbate this trend, but may have counteracted it. When measured by total factor productivity, the Act increased postal productivity. It also increased postal salaries relative to those of other government workers. The Act had little effect on the annual losses of and federal assistance to the Postal Service.