Good afternoon. I want to thank the Commission for this opportunity to share information on the impact of workers’ compensation expenses on Postal Service finances.

My current position, Manager, Corporate Financial Planning, provides me the opportunity to interface on the financial consequences of job related injuries. I have testified before the Postal Rate Commission on our workers’ compensation costs in various rate case filings and am well versed in the methodology used in determining the actuarial liability of a work related injury. I have a basic understanding on various aspects of the workers’ compensation program as administered by the Department of Labor as well as specific Postal Service programs to manage and control these costs.

My goal today is to provide an overview of the magnitude of these costs to the Postal Service and to provide comments on legislative reform opportunities. The Commission may want to consider these proposed reforms in its recommendations.

Worker’s compensation benefits are provided as a "no-fault" remedy for workers who are injured in their employment. "No-fault" simply means that an injured worker does not have to prove that a work injury was someone else’s fault in order to receive benefits for an on-the job-injury. However, workers’ compensation benefits are an exclusive remedy. Employees are not permitted to seek recovery for work-related injuries through Federal tort liability statutes or other civil actions.

Clearly, the best way to limit, or quite frankly prevent, workers’ compensation costs is to eliminate work related injuries. In this regard, safety programs have always been and continue to be a Postal Service priority. However, it is unrealistic to assume that job related injuries could be totally done away with. Accordingly, my focus is on how these costs might be controlled.

Workers’ compensation expenses represent a sizeable portion of total Postal Service compensation and benefit costs. For the 32 years since Postal Reorganization, the annual expense for job related injuries has averaged nearly 2 percent of total compensation and benefit costs. In its most recently completed fiscal year, 2002, these costs accounted for 2.9 percent or $1,524 million of total compensation and benefit costs of $51,557 million. At the end of 2002, the total liability for future workers’ compensation costs reflected in the Postal Service audited financial statements was $6,525 million. In addition to the $1.5 billion expense, an additional $800 million was paid in compensation and benefits costs for employees with work related injuries in either limited duty or rehabilitation positions.

These amounts do not include the liability for Post Office Department (POD) claims incurred before postal reorganization. Under the Postal Reorganization Act of 1971, the U.S. Government remained responsible for payment of all POD workers’ compensation claims incurred before July 1, 1971. However, under the Balanced Budget Act of 1997, the remaining liability for these POD claims costs was transferred to the Postal Service. In 1997, the present value of the liability for these claims was estimated at $258 million and recorded as an expense by the Postal Service. The liability at the end of fiscal year 2002 for POD claims was $185 million.

As provided in Title 39, United States Code, the Postal Service is subject to the Federal Employees’ Compensation Act or FECA. The FECA is a comprehensive workers’ compensation law that provides medical and death benefits, income replacement, and other services to federal employees with work-related injuries. Accordingly, the workers’ compensation program for Postal Service employees is managed by the Office of Workers’ Compensation Programs, OWCP, of the Department of Labor, and is largely outside of the control of postal management.

Under this program, the Postal Service is billed annually by the OWCP for reimbursement of all payments for medical benefits, wage-loss benefits (up to 75 percent of lost wages, tax free), schedule awards for loss of use of a scheduled body part and vocational rehabilitation costs. For the first 45 days following a workplace injury, the Postal Service continues to pay the current salary of an injured employee. Effectively, this set of funding mechanisms results in the Postal Service self-insuring for workers’ compensation.

Self-insurance, coupled with Postal Service compliance with Generally Accepted Accounting Principles in its financial reporting, requires that Postal Service financial statements reflect a liability for the present value of estimated future payments on behalf of claims incurred in any fiscal year. An estimation model that uses data regarding cost per claim, number of claims, history of similar claims and other actuarial factors determines this actuarial liability.

The rate at which claims are processed and the consistency of that rate can have a significant impact on the Postal Service liability estimation for workers’ compensation costs. If back-logs in claim processing occur, this will lead to understatement of the liability estimate for filed claims. On the other hand, an acceleration in claims processing will have the opposite impact and cause an increase in the estimated liability.

Postal Service workers’ compensation expense is comprised of four components.

These are:

(1) the net present value of the total estimated long-term liability for claims related to current year injuries, including current year payments,

(2) actuarial and model adjustments to the estimate of the existing liability for claims that occurred in prior years,

(3) the pro-rata share of OWCP administrative expenses, and (4) adjustments to the estimate of the existing liability for claims that occurred prior to postal reorganization.

The magnitude of workers’ compensation costs has been a concern since the early days of postal reorganization. Although these costs were moderate in the years immediately following postal reorganization, they grew significantly with the November 1974 amendments to the Federal Employees Compensation Act. These amendments added a Continuation of Pay (COP) provision for injured employees and provided employees with free choice of physicians. Under COP provisions, employees are entitled to receive up to 45 days of full pay from their employer before they qualify for compensation payments under FECA.

These amendments also eliminated the reduction in the level of FECA compensation benefits at age 70 and changed the 3-day waiting period before benefits could be paid. The waiting period was moved from 3-days after the date of injury to 3-days after the end of the 45 day COP period.

Following enactment of these amendments, Postal Service workers’ compensation costs increased from $94 million in 1974 to $629 million in 1977. This amount does not include nearly $28 million paid in COP costs in 1977. At the end of 1977, the cumulative long-term liability workers’ compensation reached $1.2 billion.

In recent years, the growth in workers’ compensation costs has been heavily influenced by increasing medical costs as well as the increased difficulty in returning employees and sustaining rehabilitated employees in postal limited duty positions.

As the Postal Service increases productivity, there has been a decline in the number of career postal positions. Career Postal Service complement has declined from 797,795 employees at the end of FY 1999 to 738,271 employees as of April 2003, a reduction of over 59,000 positions. Automation of mail processing and support operations has eliminated much of the manual clerical work that previously could have been assigned to limited duty positions. Accordingly, it is more difficult to return injured employees to productive on-the roll positions. And, despite a 10 percent reduction in the number of reported injuries between 2000, when 87,672 injuries were reported, and 2002 when 78,777 were reported, the number of paid compensation cases has grown

Total compensation cases have increased nearly 16 percent between the end of 1999 and 2002. During this period, paid cases for lost-wages went from 12,182 to 14,127. Much of this increase was caused by an increase in the number of paid compensation cases for injuries that occurred in the prior 3 to 5 years. These data points tend to support the premise that the FECA workers’ compensation program has become a retirement system for some postal employees.

A March 2003 report titled "Retirement Eligible Postal Service Employees on the Workers’ Compensation Periodic Rolls" completed by the Postal Service Office of Inspector General disclosed that Postal Service employees over age 55 make up 49 percent or 6,500 of the approximately 13,400 employees on the periodic or long-term rolls of OWCP. Fifty-five is the age at which employees are first eligible for voluntary retirement. More than half, 3,543 of those employees over age 55 are at least 65 years old.

Another finding included in this report was the dramatic increase in administrative costs charged the Postal Service by the Department of Labor. These costs have increased 137 percent from $19 million in 1997 to $45 million in 2002. This report concludes that "legislative reform to the Federal Employees Compensation Act (act) is needed to address concerns that the act has become, in effect, a retirement system for some workers’ compensation beneficiaries."

A critical public policy issue is the level of benefits necessary to protect workers against the loss of income from work-related injuries. A balancing act is required between the worker’s interest in substantial income benefits and the potential loss of incentive for rehabilitation if benefit payments are too high.

A 1998 General Accounting Office report titled "Federal Employees’ Compensation Act –Percentages of Take-Home Pay Replaced by Compensation Benefits" found that FECA benefits replaced, on average, over 95 percent of the take-home pay that beneficiaries would have received had they not been injured. The FECA lost-wage compensation benefit is tax free and equals either 66-2/3 of base pay or 75 percent of base pay for injured employees with dependents. Compensation benefits equaled between 80 and 99 percent of take-home pay for nearly 70 percent of these beneficiaries and amounted to 100 percent or more in 29 percent of the cases. Included in this GAO review were letter carrier and mail distribution occupations within the Postal Service.

Of the 30,000 sampled beneficiaries included in this study, 65 percent were over 55 years old and the average age was 61. The study also found that the longer recipients had been on the rolls, the greater their benefits in relation to their take-home pay, had they continued working. This is because the FECA cost-of-living adjustments were greater than the pay increases individuals would have received had they not been injured.

In a April 1996 GAO report, "Workers’ Compensation – Selected Comparisons of State and Federal Laws," it was disclosed that FECA compensation benefits were more generous than those provided under state laws and the Longshore and Harbor Workers’ Compensation Act. This report found that 35 states calculated benefits at 66-2/3 percent of wages while FECA calculated benefits as high as 75 percent of wages. In addition, maximum weekly benefit authorized by FECA, which is set at 75 percent of a GS-15 step 10 salary, currently $110,682, exceeds the maximum benefits under all other laws.

At the time of the GAO review, the maximum weekly benefit amount under other laws ranged from 27 to 60 percent of the FECA maximum.

Also, FECA is the only law that provides continuation of pay for traumatic injuries. Additionally, all other laws provide that injured employees must be out of work for 3 to 7 days before they can receive wage-loss benefits. And finally, 25 states and the FECA allow injured employees to choose their treating physicians without restrictions. In the other states, employees or employers select physicians from a state agency-approved list. In state programs where the employer chooses the physician, medical costs are between 7 and 11 percent less than those which leave physician choice to the employee.

The Department of Labor has been a helpful partner in collaborating with the Postal Service in various programs designed to lower workers’ compensation costs. The Postal Service rehabilitation program to return injured employees to work has been instrumental in reducing these costs. As a result, at the end of FY 2002, there were over 12,000 employees who were previously on the OWCP workers’ compensation rolls assigned to rehabilitation positions.

To enhance rehabilitation opportunities, last summer the Postal Service explored with OWCP a process to place injured workers with other employers. A special program was developed to place employees with private industry employers. To date, 369 injured postal employees on the periodic rolls were identified as candidates for OWCP rehabilitation outplacement and 11 individuals have been placed in positions from this original list. Returning employees to a productive status not only assists in lowering compensation costs for lost wages, but it also boosts the morale and self-esteem of the re-employed claimants.

Another effort coordinated with OWCP relates to a Postal Service contract with the nation’s largest Preferred Provider Organization (PPO), First Health. The program is designed to lower medical costs of injured employees by taking advantage of discounts negotiated by First Health with physicians and hospitals. Network provider bills are paid at agreed contract rates that are usually substantially lower than what OWCP allows. This program was implemented nationwide in July 2002. Since inception, over $32 million in medical costs have been avoided by the Postal Service.

The Postal Inspection Service works with the OWCP in identifying the small percentage of postal employees and medical providers that abuse the workers’ compensation system. In 2002, the Postal Inspection Service identified 378 individuals defrauding the program and arrested 45 employees. The activities and results of these efforts, that have saved the Postal Service millions of dollars, are described in more detail in their 2002 annual report beginning on page 35.

Despite the encouraging results of these and other related programs, much more is required in order to reduce the current level of workers’ compensation costs. Over the years, there have been various proposals to enhance the federal workers’ compensation program. As noted, in many cases, FECA provides benefits that are more generous than those received by private sector employees covered under state workers’ compensation laws.

Accordingly, the Postal Service believes that changes in the Federal Employees’ Compensation Act would be in order. In 2002, the Department of Labor drafted legislation to amend the FECA. The amendments were designed to eliminate certain benefit provisions that create disincentives to return to the workplace for workers who are able to do so by remunerating them at rates higher than non-injured employees or retirees. Included in the draft legislation were the following items supported by the Postal Service:

These proposals are a step in the right direction, but they may not go far enough to significantly control costs. Additional cost reductions would be achieved if these proposals were to be applicable not only to new claims but to all existing claims. The 70 percent compensation rate, while lower than the 73 percent average paid on behalf of injured postal employees, would still exceed the uniform two-thirds rate paid under the Longshore and Harbor Workers' Compensation Act and most state laws.

Additional discussion on these and other proposals to reduce Postal Service injury compensation costs are contained in Appendix O on pages 23 through 25 of the Transformation Plan. I would be pleased to answer any questions at this time.

I am currently employed by the University of Pennsylvania as the William B. Johnson Professor of Law and Economics. I also serve as the Co-Director of the Institute for Law and Economics, whose primary purpose is to sponsor research and cross-disciplinary programs in the areas of law, economics, and business in the various schools at Penn. I served as the University’s deputy provost from 1995 through 1997 and the University’s interim provost in 1998.

I received my undergraduate degree from the School of Industrial and Labor Relations at Cornell University and my advanced degrees in Economics from Harvard University. I have been employed by the University of Pennsylvania since 1969. I have consulted for the Council of Economic Advisors, the Congressional Budget Office, the Board of Governors of the Federal Reserve System, and a number of private sector firms. I have published extensively in the areas of law and economics, and in particular, labor economics.

I have consulted for the Postal Service since 1981 and have testified before numerous interest arbitration panels since that time. Most recently, I testified in October 2001 before the Goldberg Arbitration panel held to resolve the bargaining impasse between the Postal Service and the APWU. My consulting work and testimony on behalf of the Postal Service has focused on the issue of wages and benefits in the Postal Service and how they compare to the private sector.

The comparability work I have undertaken is guided by the Postal Reorganization Act (PRA), which states that the U.S. Postal Service shall "maintain compensation and benefits for all officers and employees on a standard of comparability to the compensation and benefits paid for comparable levels of work in the private sector of the economy."1

I have examined the issue of postal wage and benefit comparability in a number of ways. My starting point is an analysis of data obtained from the Current Population Survey (CPS) of the Bureau of the Census. This data enables us to compare postal workers with similar private sector workers. The methodology used to make this comparison -- multivariate regression analysis --is the generally accepted method for estimating wage differentials. To explain the meaning of the wage comparison, a nontechnical illustration of the premium is useful. Suppose workers who were otherwise identical in age, years of education, occupational category, region of residence, and city size found jobs in different industries in the U.S. economy. What would those individuals in the various private sector industries be paid compared to the postal worker? That is the question that is being answered by the regression analysis of the CPS data.

In the most recent arbitration proceeding before arbitrator Goldberg, we found that the postal wage premium was 21.2 percent.

1 Postal Reorganization Act, 39.U.S.C. Section 1003.

The next stage of our comparability work extends the CPS wage analysis to include additional variables in our regression from the Department of Labor’s Dictionary of Occupational Titles (DOT). The DOT is a reference manual and data source, conducted and published by the Department of Labor. It provides a broad range of information on the content and characteristics of detailed occupations based on assessments by job evaluators. Information provided in the DOT describes the skill requirements and content of jobs or the working conditions and the physical demands of jobs. The DOT variables are good complements to our CPS wage analysis because the data are based on evaluations of the job and the job requirements rather than the individual worker who fills the job, as is true of the CPS wage analysis.

The DOT skill and working conditions variables are grouped into categories measuring the following skills and working conditions: training variables, worker function scales, aptitude factors, physical demands, and environmental conditions. Including DOT skill and working condition variables in our analysis yields a higher estimate of the postal wage premium. As compared to the 21.2% wage premium estimated by the CPS wage analysis, the wage premium for postal craft workers was calculated to be 33.9 percent when DOT variables were added.

I have also analyzed postal wages by using the Department of Labor’s new Occupational Information Network, known as O*NET. The O*NET database is produced by the Department of Labor’s Employment and Training

Administration group. The O*NET database or data dictionary was created within the past several years by job analysts based in part on detailed job analyses, many of which are conducted as part of the DOT. In developing the O*NET database, the Department of Labor is expanding the DOT concept into a more comprehensive set of job descriptions. O*NET is described by the DOL as being a comprehensive database system for collecting, organizing, describing and disseminating data on job characteristics and worker attributes. The O*NET database contains 259 highly detailed, distinct job descriptors. They fall into a wide range of categories ranging from abilities that influence the acquisition and application of knowledge in problem solving to psychomotor, physical, and sensory abilities to social, technical, and complex problem-solving skills.

The first step in our O*NET analysis was to focus our attention on the job descriptors that are pay related. To do this we matched the O*NET database of job descriptors with the CPS database on wages of individuals by occupation. In order to determine the descriptors that were most pay related we performed a correlation analysis. The next step in this analysis was to see how the Department of Labor ranked the postal occupations in each of the job descriptors. In doing this we excluded professional and managerial occupations.

The final step in this analysis was to analyze the implications of the O*NET database for our wage premium analysis. The results are clear from our use of the O*NET data. Among the many job attributes that characterize high paying jobs, postal employees typically are ranked very low (in the bottom third of all nonmanagerial and nonprofessional workers). For example, when compared to administrative support and clerical occupations, which on average pay substantially less than postal jobs, postal employees tend to be ranked lower along most of those descriptors associated with high pay. Compared to those occupations with pay similar to that of postal employees, the postal job is ranked as having lower values in virtually all of the O*NET job characteristics most associated with higher pay.

The O*NET results are highly supportive of the results we obtained using the CPS/DOT data sources. The O*NET results show that the postal job is rated low in the job descriptors most associated with pay. The O*NET analysis supports the CPS-DOT results, which indicate that when job traits are included in the analysis, the postal wage premium actually increases. As measured in the CPS-DOT and O*NET analyses, job skills in postal jobs are below the average in jobs held by private sector workers. Our use of the O*NET results fully supports the existence of a postal wage premium.

Another relevant method for analyzing postal wages is to examine the wages earned by newly hired postal employees upon first entering the Postal Service. Such an approach is referred to as a "longitudinal" analysis, in that it compares wages for an individual over time. Such longitudinal  analysis is well accepted as a means of analyzing wage differentials.

Based on a large sample of postal employees hired during a particular time frame, the starting salary of postal new hires age 25 and over was compared with their previous full-time salaries in the private sector. In the most recent new-hire survey that was conducted, the wage gain for newly hired craft employees was 29.1 percent. Across the economy, the average real wage change among workers age 30 to 45 switching jobs during 1996-2000 (a period of low unemployment) was only 4.5 percent.

From the various methods of analysis above, we concluded that a significant postal wage premium exists. If this conclusion is correct, two implications follow. First, postal workers should have relatively low quit rates. All other factors being the same, dissatisfied workers quit their jobs. Second, the Postal Service should find it easy to hire qualified workers to fill job vacancies. In addition, if both of these factors can be shown, then the converse is also true. Unusually low quit rates and long employment queues imply the existence of a compensation premium.

Employment register data also attest to the extraordinary attractiveness of postal jobs. Postal jobs are filled off employment registers at local postal districts. Register data in the Postal Service consistently shows large applicant queues. The size of the applicant queue has been limited primarily by whether the local employment register was open to general applications from the public.

This further confirms the attractiveness of postal jobs. Even in the highest wage labor markets, postal compensation is sufficiently high to attract large numbers of qualified workers. As does the evidence on quit rates, information on postal applicant queues confirms our conclusion that the postal compensation premium is large and that postal employment is extremely attractive to workers as compared to private sector alternatives.

These methods of analysis, utilizing the Current Population Survey, the Dictionary of Occupational Titles, the O*NET, the New Hire Survey, low quit rates, and large applicant queues, have formed the basis for my conclusions concerning the postal wage premium.

In addition to an analysis of wage comparability, the Postal Reorganization Act also requires a comparison with regard to benefits. To make this comparison I rely on data obtained from the Bureau of Labor Statistics as published in the Employer Costs for Employee Compensation. This analysis is based on a comparison of private sector benefits as estimated by the BLS data with postal benefits calculated on a comparable basis. In performing this analysis, I include the cost of retirement and insurance programs (such as health insurance), as well as paid leave. I have performed this benefits analysis since the interest arbitration before Arbitrator Mittenthal in 1991. The analysis has always reflected a benefits premium that was far in excess of the wage premium.

By combining the benefits premium with the wage premium, a total compensation premium can be estimated. In the most recent interest proceedings before Arbitrator Goldberg, the total compensation premium was found to be 34.2 percent.

The primary response of the unions in interest arbitration to the econometric evidence described above has been to challenge the choice of the group to whom postal workers should be compared. In our work my colleagues and I adopt a comparison group of full-time private sector workers with individual and job characteristics similar to those among postal workers. Bargaining unit postal employees are, thus, compared to both union and nonunion workers, to workers in large and small firms, and to workers in large and small establishments. The implicit and sometime explicit weighting given each group corresponds to their distribution among the private sector comparison group of workers.

The principal areas of disagreement with the economists for the unions have centered on specification issues regarding union status, employer size, and race and gender. In other words, while we compare postal employees broadly to the private sector, the unions propose a standard whereby postal wages are compared implicitly to wages for private sector workers who are white male, unionized, and in large firms.

One of the most contentious issues in postal arbitration hearings has been the attempt by the unions to use a "union standard" of comparison versus our use of a mixed union and nonunion private sector standard. The unions have proffered a standard in which the wages of postal workers are compared to unionized private sector workers, treating union status as if it were a transferable skill variable such as schooling. The principal rationale underlying this claim is the assertion that higher union wages in the private sector are entirely capturing otherwise unmeasured worker skills so that the union wage premium is essentially zero. The result of these assumptions is to compare the wages of postal workers only with the wages of unionized workers in the private sector.

These assertions are testable. The size and nature of the union wage advantage have been tested extensively in the academic literature. Evidence from the private sector overwhelmingly rejects the contention that there is no union wage premium for union workers relative to nonunion workers of similar skill. Our evidence from the New Hire Survey and the data from the DOT also reject such a conclusion for Postal Service workers and jobs.

Our methodology does not employ either a union-only standard or a nonunion standard. Instead, we compare postal workers to a mix of union and nonunion workers across all private sector industries, where the mix is calculated using weights based on private sector employment of nonprofessional and nonmanagerial union and nonunion workers. Such a private sector comparison comports closely to the standard of opportunity cost wages and economic efficiency, as well as to the PRA comparability mandate.

There has also been an attempt by the unions to focus their econometric evidence on wages paid by large firms. Our treatment of employer size is similar in principle to our approach to union status, which has the effect of comparing postal workers to private sector workers across all firm and establishment size categories, with an implicit weighting equal to that of the private sector. It is generally recognized in wage differential studies that if one is going to control for employer size, it is appropriate to control for both firm and establishment size, since they may measure distinct wage determinants and each has an independent effect.

All postal employees work for a large firm, and the unions’ analysis controls for firm size. However, the establishment size for postal employees is not particularly large, and the unions’ analysis does not account for establishment size. When one includes both firm and establishment size measures in the wage regression, the postal premium is little different than when the size measures are excluded.

Finally, some of the unions claim that postal wages ought to be compared only to those or those of private sector white males. This is based on the contention that lower wages in the private sector for women and minorities results entirely from labor market discrimination and that, absent such discrimination, wages for all workers would rise to the level of white males. Besides ignoring the PRA mandate, the argument is flawed on both theoretical and empirical grounds. The unions’ white male standard assumes that wage differentials by gender and race are due entirely to labor market discrimination.  Numerous studies, however, show that some portion of these wage differentials are due to premarket factors, such as education and experience, which the workers bring to the labor market. Moreover, it assumes that in the absence of discrimination, all private sector wages would rise to the level of white males. However, there is little to suggest that the average wage in the economy would increase by much absent discrimination.

In some cases, the unions have used two or even all three restrictions at once. We have throughout countered the union’s various attempts to narrow the standard of comparability by relying on the results of academic theory and evidence.

All of these analyses and arguments have been presented at various times in postal interest arbitration proceedings dating back to 1984. Postal interest arbitrators have consistently concluded that a material wage premium exists. Based on their analysis of the evidence in 1984, the Kerr arbitration panel found that "discrepancies in comparability" existed and indicated that their award was intended to reduce the pay discrepancies that had arisen since the PRA by one percentage point per year over the life o f the 1984-87 contract. Chairman Kerr characterized this intended rate of closing of the gap as "moderate restraint," and went on to comment that since the premium "did not develop overnight.. . it would be a mistake to try to correct [it] too hastily." In looking ahead, Chairman Kerr stated that a three-year closing of the premium at one percentage point per year "does not dispose of the problem. Moderate restraint may also be necessary in future years to approximate the guideline of comparability."2

Since the Kerr Award, the Postal Service has attempted to moderate its wage increases by 1% per year compared to the private sector. To do this, the Postal Service has compared its wage increases to the employment cost index (ECI) for all private sector workers, and has used ECI-1% as a goal.

In 1995, after reviewing evidence put before him in the NALC interest arbitration proceedings, Chairman Stark acknowledged the need for continued moderate restraint: "In reaching the conclusions set forth here, I have recognized  the need, particularly in light of automatic grade, step, and COLA increases, for wage increases even more modest than those contained in the award of the Mittenthal Board."4

2. Clark Kerr, Chairman, "Opinion and Award," Arbitration Proceedings, United States Postal Service and National Association of Letter Carriers, AFL-CIO, and American Postal Workers Union, AFLCIO. December 24, 1984.

3. Richard Mittenthal, Chairman, "Opinion and Award," Arbitration Proceedings, United States Postal Service and NALC, AFL-CIO, and APWU, AFL-CIO, June 12, 1991, pp. 16,18.

Furthermore, in the Mail Handlers Union interest arbitration proceedings in 1996, Chairman Vaughn concluded: "I am persuaded by the evidence presented by the Postal Service that its NPMHU-represented employees continue to enjoy a wage premium compared to their counterparts in the private sector .…"5

In 2001, the Goldberg interest arbitration panel further found the existence of a wage premium based on the fact that Postal Service jobs are highly sought after, that applicant queues are long, that there is a substantial new hire premium, that quit rates are extremely low, that postal employees have job security, that employees have an extraordinary benefits package, and that wages have kept pace with inflation. Based on the above, Arbitrator Goldberg stated: "In concluding that there exists a Postal Service wage premium, I join a long list of arbitrators in prior USPS interest arbitrations who have reached the same conclusion."6 Accordingly, while interest arbitrators have not resolved all of the debates regarding proper econometric analyses, and have not rendered conclusions with regard to the specific size of a postal wage and benefit premium, these arbitrators have consistently concluded that a postal wage and benefit premium existed.

4. Arthur Stark, Chairman, "Opinion of the Chairman," Interest Arbitration Proceedings, United States Postal Service and NALC, AFL-CIO, Aug. 19, 1995, p. 38.

5. M. David Vaughn, Chairman, "Decision," Interest Arbitration Proceedings, United States Postal Service and National Postal Mail Handlers Union, April 24, 1996, p. 7.

Another piece of information that I have presented to interest arbitration panels over the years has been based on tracking how postal wages and benefits have grown compared to wage and benefit growth in the private sector.

In so doing, we have utilized the BLS Employment Cost Index (ECI) as a measure of private sector wages and payroll data provided by the Postal Service as a measure of postal wages and total compensation.

When I performed this analysis for the Goldberg arbitration, I found that for the period 1984 through 2000, postal wages increased at an average annual rate of 3.0 percent, while private sector wages as measured by the ECI increased at an annual rate of 3.6 percent. Thus, since the 1984 Kerr Award the Postal Service has achieved a closing of the wage gap with the private sector of 0.6 percent per year. This evidence of some closing of the wage gap is consistent with other tracking analyses I have performed. Part of this closing of the wage gap between postal and private sector workers as measured by the private sector ECI is due to large wage increases received by private sector professionals and managers over this period. When professional and managerial occupations are removed from the private industry ECI, the amount of closing of the wage gap shrinks to 0.4 percent per year.

Our tracking analysis, however, further shows that moderate restraint with respect to wages has had little impact on trends in overall postal compensation

relative to the private sector. The reason is that postal benefits have grown at a rate significantly exceeding benefit cost growth in the private sector. As shown in our report to the Goldberg Arbitration Panel, when comparative wage and benefit costs are both considered, Postal Service average annual total compensation growth was about the same as that experienced by the private sector.

In short, while there has been some degree of moderate wage restraint, there has not been restraint in the growth of the cost of benefits. As a result, there has been virtually no reduction in the total compensation premium.

In conclusion, the issues related to postal wages and benefits have been debated and litigated over a long period of time. I believe that the evidence that I have presented, along with that of other postal witnesses, has demonstrated the existence of a wage and benefit premium. Interest arbitrators have issued awards intended to moderately restrain the growth of postal wages. The evidence suggests that while there has been some closing of the wage gap, growth in benefits costs as compared to the private sector has offset any closing on the wage side.

Arbitration Proceedings, United States Postal Service and APWU, January 11, 2002, page 9.