The Multiplier Effect: How consolidating mail processing plants hurts the economy

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When the Postal Service closes a large mail processing plant, it doesn't just impact postal workers.  There can also be significant indirect effects.  Other people lose their jobs, business activity slows, tax revenues decline.  The loss of postal jobs thus has a multiplier effect that ripples through the economy of the entire region.  When dozens of plants are closed across the country, the multiplier effect has nationwide significance.

Last fall the American Postal Workers Union commissioned several studies about how consolidating mail processing plants and eliminating jobs would affect local and state economies.  The reports show that the financial losses could easily exceed the amount the Postal Service expects to save from the consolidations.

The reports were prepared by the Fiscal Policy Institute, an independent, nonpartisan, nonprofit research and education organization based in New York.  The reports examine five plant consolidations: Youngstown, Ohio; Dakota Central in Huron, South Dakota; Mid-Hudson in Newburgh, New York; New Orleans, Louisiana; and Tucson, Arizona.  (The links go to the reports.)

The FPI reports look at how many postal jobs will be lost in the community and how many additional jobs will consequently be lost in other economic sectors — banking, food services, real estate, health care, etc., — as a result of the multiplier effect.  On average, for every ten postal jobs that are eliminated, another seven jobs are lost in the community.  

The reports then estimate how these jobs losses will impact the economy of the community where the plant is located.  Since the consolidations also involve transferring some postal workers to another plant, the reports also look at the economic benefits that will be experienced in the gaining community.  Finally, the reports examine the net effects for the state or region with respect to job losses, economic output, and tax revenues.

The reports all tell the same story: While the consolidations may save some money for the Postal Service, the local communities and the broader regions will pay the price.  

Here’s a table summarizing the results of the five reports.  (A more complete worksheet can be found here.)

The reports stay focused on the five communities and don’t venture any estimates about what the results mean for the country as a whole.  However, using these numbers, one can make some estimates about the picture nationwide. 

Taking the average for the five consolidations, we see that when 150 postal jobs are eliminated, the equivalent of another 80 jobs are lost in the community.  This net loss of 230 jobs causes a loss of about $17.7 million in economic output to the state or region.

In order to extrapolate these averages to the plant consolidations nationwide, it’s necessary to have an estimate for how many postal jobs will be lost.  There have been various estimates for that number. 

In the early stages of Network Rationalization, back in February 2012, the Postal Service prepared an environmental assessment that said the plan would close 250 plants and eliminate 34,000 jobs (p. 47).  After the number of plants was reduced, a Postal Service press release put the number at 28,000 jobs.  In testimony to the Postal Regulatory Commission (in June 2012), the Postal Service indicated that 13,000 of these jobs would be eliminated as a result of phase 2 of the plan.

More recent estimates have been lower.  An article in a union publication estimates that about 10,000 jobs will be eliminated by phase-2.  An article in Government Executive in September 2014 broke down the job losses plant by plant and came up with a total of  7,320.  These lower estimates may reflect the fact that some workers had already left the Postal Service as a result of retirement incentives, or perhaps the estimates simply use different methodologies.

In any case, depending on just how many jobs are lost, the estimates for lost economic activity due to phase 2 of the consolidations would range from about $860 million to $1.5 billion.  If it turns out that the total plan, with both phases, ends up eliminating 28,000 jobs, it could cause a net loss of almost 43,000 jobs and $3.3 billion in economic output nationwide.  

The Postal Service’s latest estimate (in a recent FAQ page) is that phase 1 will save $865 million annually and phase 2 will save $750 million. 

In other words, the Postal Service may save about $1.6 billion while the country stands to lose twice that amount in economic output.  That’s why the five reports all observe that the “savings” for the Postal Services “come at a dear economic and individual cost” for the community.  

The impacts on state, local, and federal taxes are also significant.  Based on the averages of the five studies and the Postal Service’s estimate of 28,000 jobs eliminated, the total in lost taxes would be on the order of $70 million in state and local taxes and $500 million in federal taxes.  

The numbers in the five reports, it may be noted, are consistent with a similar report done back in October 2011 by the Regional Development Institute at Northern Illinois University on behalf of the Greater Springfield Chamber of Commerce.  (The APWU had nothing to do with this earlier study.)

The NIU study examined how Postal Service reductions in the workforce impacted the economy of Sangamon County.  The study showed that a loss of 300 postal jobs would cause another 145 jobs to be lost in other sectors of the economy.  The total lost to the county’s GDP (the community’s wealth) would be over $31 million, and total economic output would fall by almost $43 million.  

As all of these studies show, the Postal Service does not operate in a vacuum.  When it cuts jobs, it saves some money, but the savings come at a high price to communities, states, and the nation as a whole.  If the Postal Service were a private corporation focused on maximizing profits, that might make some sense, but the Postal Service is still part of the federal government. 

Members of Congress should be asking why it makes sense to close more plants, eliminate thousands of jobs, slow down the mail, drive away postal business, reduce tax revenues, and harm local economies.  Is that what Congress really means when it says the Postal Service should act like a business?

(Photo credit: New Orleans mail processing center)

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