INDLISTRIAL RELATIONS, Vol. 15, No. 2, May 1976

SHARON P. SMITH”

Are Postal Workers Over- or Underpaid?

AT THE TIME of their strike in 1970, U.S. postal workers were generally conceded to be underpaid.’ A comparison of their salaries with those of New York City municipal employees, for example, emphasized the inadequacy of their pay; on the other hand, the salaries of private delivery service employees were less.2 This picture had changed by the July 1975 contract negotiations, when the average postal worker (clerk, pickup truck driver, postman) was reportedly earning about $13,500 at the top of the scale plus fringe benefits, thanks partly to a cost-of-living provision in the previous two-year contract. The provision, which alone resulted in increasing average postal earnings by about $1,300 each year, granted cost-of-living increases at six-month intervals of 1 per cent per hour for every 0.4 point increase in the Consumer Price Index. The three-year contract agreed to in July 1975 granted postal workers raises amounting to $1,500 over the life of the contract as well as continuation of the cost-of-living increases and, in addition, a guarantee against layoffs.3

The purpose of this paper is to provide empirical evidence on whether postal workers are presently underpaid relative to comparable private sector

‘Research Associate, Industrial Relations Section, Princeton University. ’See W. J. Usery, Jr., “As Seen by Government,” pp. 361-368, and James C. Gildea, “Labor Looks

at the Postal Negotiations,” pp. 368-372, in Collective Bargaining Today, Proceedings of the Collective Bargaining Forum-1970 (Washington, D.C.: Bureau of National Affairs, Inc., 1971).

Minimum Maximum Number of years yNew York Times, March 22, 1970, reported the following:

Letter carrier $6176 $ 8442 21 Sanitationman 8339 9871 3 Bus driver 8403 LOO04 3 Patrolman 9499 11350 20 Teacher 7950 12500 8 REA express

(truckdriver helper) - 8070 - Parcel delivery (helpers) - 7113 -

3“Postal Unions Get 3-Year Pact: $1,500 and Living Cost Clause,”New York Times, July 22,1975.

168

Are Postal Workers Over- or Underpaid? / 169

and other federal workers and what factors may account for differences.4 In contrast to other wage comparisons, which are not adjusted for individual and labor market characteristics, the wage comparisons in this paper control for the effects of different human capital and other socioeconomic charac- teristics (such as race, sex, occupation, etc.). These adjusted wage compari- sons facilitate a more complete evaluation of the adequacy of pay on the basis of the relative capabilities and other characteristics of postal workers, other federal workers, and private-sector counterparts. The arrangements for pay determination in the federal government are first described.

Federal Pay Schedules In 1973, the national schedules of the United States Postal

Service covered 24.7 per cent of all federal civilian employees, with salaries determined on the basis of duties performed. The Postal Service Schedule, with 22 levels of responsibility and difficulty, covers most Postal Service employees. Several pay schedules exist for the remaining federal employees. In 1973, the General Schedule covered 46 per cent of all federal civilian employees. Like the Postal pay schedules, the General Schedule sets pay scales by law which are comparable to private sector pay rates for similar jobs and which apply uniformly throughout the country, with no allowances for regional differences in cost of l i ~ i n g . ~ Most blue-collar workers, 22.3 per cent of all federal civilian employees in 1973, have their pay scales deter- mined under the Federal Wage System of the Civil Service Commission. These rates, in contrast with those in the General and Postal Schedules, are based on comparisons with regional wage surveys and so allow for regional differences in the cost of living, The remaining federal civilian employees are paid under several special pay plans6

Because of data limitations, in this paper federal workers are classified into two groups only: Postal Service and other federal workers. Postal Service employees are identified by their three-digit industry classification. The remaining federal workers cannot be distinguished according to sep- arate pay systems. Nevertheless, this two-way breakdown provides valuable information on the present relative wage position of the two major groups of federal, workers.

4Financial assistance for this study was provided by the National Science Foundation under grant number SOC 74-13200 A01. I would like to thank John Pencavel, Albert Rees, and V. Kerry Smith for helpful discussion during the research.

5The General Schedule pay rates are established on the basis of information found in the National Survey of Professional, Administrative, Technical, and Clerical Pay conducted by the Bureau of Labor Statistics. Pay rates in the Postal Service are established on the basis of collective bargaining between the employee unions and the management of the Postal Service.

6U.S. Civil Service Commission, The Federal Career Service.. .a t Your Service (Washington, D.C.: U.S. Government Printing Office, 1973).

170 / SHARONP. SMITH

Empirical Results To examine the wage positions of Postal Service and other

federal workers relative to the private sector and to one another, separate wage equations derived from the human capital model of income distribu- tion are estimated for males and females7 Data for these equations are derived from the May 1973 Current Population Survey. The dependent variable is the natural logarithm of the hourly wage rate estimated from the reported usual weekly earnings and the usual hours worked for the week and thus also reflects both the overtime premium and the amount of over- time worked. Explanatory variables include years of education; a proxy for years of experience (with an allowance for the effects of differences in the strength of attachment to the labor force on the incentive to invest in on- the-job training); and dummy variables for marital status, race, Spanish origin, veteran status, size of urban area, geographic region, occupational group, regular part-time status, dual job status, union status (both private and public sector), and sector of employment.6 Within the set of variables describing sector of employment (the nonunion private sector is the base group, and there are separate dummy variables for Postal Service, other federal, state, and local government employment), the inclusion of separate dummy variables for Postal Service and other federal government employ- ment enables estimation of the different influences of these two basic types of federal employment on an individual’s wages. Further, the inclusion of a set of interaction variables between union status and sector of employment enables consideration of the hypothesis that the union impact on wages varies across ~ e c t o r s . ~ The addition of this last set of interaction variables

’Separate equations have also been estimated for male clerks, female clerks, all male federal workers, and all female federal workers. These results, as all other data including the regression equation, are available on request from the author.

*For discussion of the exact specification of this equation, see Sharon P. Smith, “Government Wage Differentials by Sex,” Journal of Human Resources (forthcoming, Spring 1976).

91t is important to note that the union status variable represents all those who responded that they were union members, whether public or private sector, on the Current Population Survey. It cannot be determined how many of these are members of associations who regard themselves as union members. Moreover, it cannot be determined how many nonunion members are covered by union contracts. Thus, this variable provides an estimate of the union/nonunion differential and not the differential between union wages and the wages that would prevail in the absence of unionism. Specifically, in Ashenfelter and Johnson’s notation, the coefficient of the union variable is an estimate of In (1 +m), where m is the proportional union/nonunion wage differential, (WU- Wn)/Wn. See Orley Ashenfelter and George E. Johnson, “Unionism, Relative Wages, and Labor Quality in U.S. Manufacturing Industries,” International EconomicReuiew, XI11 (October, 1972), and H. G r e g Lewis, Unionism andRelatiue Wages in the United States (Chicago: University of Chicago Press, 1963). However, it must also be pointed out that while the estimated coefficient here is unbiased, its antilogarithm is downward biased and is thus an under- estimate of the true union/nonunion effect. For this reason, only estimated coefficients of all the dummy variables, not their antilogarithms, are examined in this paper. For further discussion of this point, see Marc Nerlove, Estimation and Identification of Cobb-Douglas Production Functions (Chicago, Ill. : Rand McNally, 1965), pp. 66-67.

Are Postal Workers Over- or Underpaid? / 171

adds significantly to the explanatory power of the equations for all males and all females.l0

Because the dependent variable in all equations is in natural logarithms, each of the estimated coefficients of the dummy variables represents the relative wage advantage (disadvantage) associated with the particular char- acteristic. Thus, each can be interpreted as the per cent change in the wage rate associated with a change in status of this characteristic. The estimated coefficients of the union status, work class, and union-work class interactions variables presented in Table 1 enable an examination of the wage positions of the two types of federal workers relative to each other and to comparable private sector workers." Because of space limitations, only these coefficients are examined for each equation estimated. Thus, examination of these esti- mated coefficients enables consideration of the effects of differences in the

TABLE 1

REGRESSION RESULTS FOR ALL MALES AND ALL FEMALES ESTIMATES OF EFFECTS OF UNION AND FEDERAL EMPLOYMENT STATUS ON WAGES

Variable Males Fernales

Nonunion, private (reference group) Union, public and private

Nonunion, postal

Nonunion, other federal worker

Union, nonunion postal

Union, nonunion other federal worker

F R2

Standard error Number of postal workers Number of other federal workers Number of private sector workers Total number of observations

-

0.00 0.25

(33.35) 0.25 (5.81) 0.27

(14.34) -0.24

(-4.66) -0.20

(-4.65) 484.72

0.47 0.42 33 1 690

18,340 22,037

0.00 0.22

(18.71) 0.49

(7.14) 0.30

(13.78) -0.13

(-1.28) -0.11

(- 1.70) 267.08

0.42 0.41

70 422

11,467 14,857

Source; Current Population Survey, 1973. The data used for regressions pertain to all employed malea and females who were classified as private sector or government employees and who usually work ten or more hours a week.

Note: t-values are in parentheses.

'OThe values of the F-statistic for all males and all females are 16.68 and 3.97, respectively, which are both significant at the .01 level.

"These calculations are made under the assumption that the effects are additive for the different groups considered. Although this assumption may not be justified, it is believed that these calculations provide valuable insight into the direction of the wage relationships but not necessarily accurate measure- ment of precise effects.

172 / SHARON P.SMITH

sector of employment (private, Postal Service, or other federal) and union status within each sex on the wages of workers who are comparable in all other measured characteristics (education, experience, marital status, occu- pation, etc.).

Before the comparisons are made, it is important to review the base groups for the dummy variables to understand what each coefficient mea- sures. Each independent variable can be related to the nonunion private sector, which is the reference group. The coefficient of the union variable by itself, therefore, provides an estimate of the relative wage advantage of union membership over the nonunion private wage; the coefficient of the nonunion postal variable provides an estimate of the relative wage ad- vantages over that of the nonunion private sector worker, as does the coefficient for the nonunion other federal worker. To examine the relative wage advantage of a unionized postal worker, it is necessary to add the coefficients of the union, postal, and appropriate interaction variables. The negative sign of the coefficients of these interaction variables clearly indi- cates that the unionized federal worker does not enjoy the full advantage of both union and federal employment but rather a relative wage advantage that is less than the sum of these two effects. This reflects the fact that because all postal workers are contained in the same bargaining unit, the wage advantages obtained by postal unions are also passed on to those postal workers who are not union members.

The regression results permit separate comparisons of the relative wage positions of comparable unionized and nonunionized federal and private sector workers. No significant wage differentials are anticipated between union and nonunion postal workers, since they belong to the same bargain- ing units. However, to make a thorough study of this issue, the wage posi- tions of union and nonunion postal and other federal workers relative to each type of private worker (union and nonunion) are examined separately before testing statistically for the existence of a significant union differential in either type of federal employment.

Nonunion federal us. nonunion private workers. Table 1 indicates that nonunionized males and females in both types of federal employment enjoy a large and significant advantage over comparable nonunionized private sector workers. Because, as noted, the base group is nonunion private sector, the coefficients of the class of worker variables provide direct esti- mates of these effects, which range in size from .49 for female nonunion postal workers to .25 for male nonunion postal workers and from .30 for other female nonunion federal workers to .27 for other male nonunion federal workers. The relative wage advantage is larger in each case for

Are Postal Workers Over- or Underpaid? / 173

females than for comparable males. However, this difference between males and females is significant only for nonunion postal workers.12 This implies that sex discrimination in wages is greater in private than in federal employ- ment. Essential differences in the nature of hiring, promotion, and pay determination procedures between private and federal employment prob- ably provide the best explanation of this result: federal procedures appear to provide fewer opportunities for discriminating between comparable males and females than private procedures. This does not imply that sex discrim- ination in wages does not exist in federal employment but only that its effects appear to be smaller than in private employment.

Nonunionized federal vs. unionized private workers. This comparison is straightforward: it is simply the difference between the coefficient of the sector of employment variable and the union variable. These comparisons display considerable variations according to sex. Among the females, both postal and other federal workers receive significantly higher wages than their private sector counterparts. Although the differences for postal workers is an enormous .27, for other federal workers it is only .08. Among the males, however, the estimated wage advantage associated with being a postal worker is identical to that of a private sector union worker. Although the nonpostal federal workers enjoy a slight wage advantage over the private sector union members, this difference is not significant. Again, these dif- ferences in relative positions between the sexes may reflect greater sex discrimination in wages in the private sector. An alternative explanation is that unionized private sector males are concentrated in more powerful unions than unionized private sector females.

Unionized federal workers vs. private workers. To examine the wage advantage of unionized federal workers relative to both nonunionized and unionized private sector workers, it is necessary to include the interaction effects between union status and class of employment. Thus, the advantage over nonunionized private sector workers is the sum of the union coefficient, the class of employment coefficient (postal or other federal), and the ap- propriate interaction coefficient. For example, an estimate of the wage advantage of a unionized female postal worker over a nonunionized female private sector worker is obtained by summing the coefficient of the postal variable (which measures the advantage of the nonunion postal over the nonunion private worker), the coefficient of the union variable (which

lZThe difference for postal nonunion workers is .24 with a t-value of 2.96, while that for other federal nonunion workers is .03 with a t-value of 1.04.

174 / SHARON P. SMITH

measures the advantage of the union worker, both public and private sector, over the nonunion), and the coefficient of the postal-union interaction variable (which measures the difference between the union/nonunion differ- entials for postal and private workers). The results of these calculations indicate that among both males and females, unionized federal employees of either type have significantly higher wages than nonunionized private sector workers. The differences are enormous, ranging in size from .58 for female postal workers to .26 for male postal workers and from .41 for female nonpostal federal workers to .32 for male nonpostal federal workers. Again, the relative wage advantage is larger in each case for females, but the dif- ference between the sexes is significant only for postal ~ 0 r k e r s . l ~ This result is consistent with the significant wage advantage enjoyed by nonunionized federal employees over nonunionized private workers observed above. Thus, it appears that all federal workers, regardless of their union status, enjoy an advantage in wages over nonunionized private sector workers.

Unionized federal vs. unionized private workers. To make this final com- parison, it is necessary to examine the sum of the class of employment co- efficient and the appropriate interaction ~0efficient.l~ These effects also vary according to sex. The wages of both types of female federal workers are significantly larger than their private sector counterparts (a difference of .36 for postal and .19 for other federal workers). Although the wages of both types of unionized male federal workers are larger than unionized private sector workers, the differences are not significant. Thus, unionized male federal workers appear to receive wages comparable to their private sector counterparts. Furthermore, these differences are again larger in each case for females, but this is significant only for postal workers.'5 Again, these results are consistent with the earlier comparisons between non- unionized federal workers and unionized private workers. Thus, it appears that the wage advantage associated with federal employment is unaffected by membership in a federal employee union.

Summary. Although federal workers receive wages that are at least equal to those of comparable private sector workers, the precise relationships

l?The difference for postal union workers is .32 with a t-value of 4.17, while the difference for other federal union workers is .09 with a t-value of 1.28.

"This is a kind of net comparison. Because both unionized private sector and federal workers enjoy the wage advantage measured by the union coefficient, the advantage of this federal worker relative to a comparable private sector worker can be determined by examining the sum of the sector of employ- ment coefficient and the appropriate interaction coefficient.

I5The difference for postal workers is larger for females than males by .35 with a t-value of 4.51, while the difference for other federal workers is larger by .12 with a t-value of 1.66.

Are Postal Workers Over- or Underpaid? / 175

vary according to sex and union status. All federal workers (whether postal or nonpostal, male or female, union or nonunion) appear to experience significant wage advantages over nonunionized private sector workers of comparable personal and labor market characteristics. Similarly, female federal workers enjoy significantly higher wages than even their unionized private sector counterparts; the same advantage does not accrue to males. Male “other” (nonpostal) federal workers do slightly better (relative to their private sector counterparts) than do male postal workers. The opposite is true for females.16

With one exception there are no significant differences between the wages of union and nonunion federal employees, a result to be expected from the fact that both groups work under the same pay scales. The one difference (at only a .05 level of significance) relates to nonpostal females. A likely explanation for this unexpected latter result is that higher-paying jobs are concentrated in the more heavily unionized types of nonpostal employment.

One qualification should be noted. Although these equations control for the influence of region and city size on wage rates, it is possible that if the equations were estimated within regions or cities, the pattern of the govern- ment differentials would vary. Since only the Federal Wage System allows regional variation in pay scales, the wage advantage associated with federal employment is probably smallest in high wage areas. However, it is not expected that this federal differential would be significantly negative: that is, federal wages would, on average, be significantly lower than the wages of nonunion private sector ~ 0 r k e r s . l ~

Conclusions The situation the postal unions described in 1970 for postal

wages had been reversed by 1973.lS On average, federal workers, both

leThe relative wage positions of the two types of federal workers were tested to determine if there were a significant difference between them. Although male other federal workers appeared to receive higher wages than comparable postal workers, the difference was not significant. Among females, on the other hand, nonunion postal workers received significantly higher wages than their counterparts in other federal employment.

”Preliminary examination of equations estimated within regions and within specific city sizes has confirmed these expectations. However, further research is necessary in this area.

’*It is true that the reports of postal pay inadequacy in 1970 described in the press were not based on any multiple regression results such as those for 1973 analyzed in this paper. Thus, it is possible that a similar empirical examination for 1970 data would also refute these reports. In fact, regressions esti- mated for male and female federal and private sector workers in the Washington, D.C., Maryland, Vir- ginia, and Delaware area, using 1970 Census data, indicate that both sexes in both postal and other federal employment received significantly higher wages than their private sector counterparts. No con- sideration was given to differential union effects, sin= no information was available on union status. Nevertheless, these results imply that a wage advantage for both types of federal workers was not a new development in 1973.

176 / SHARONP.SMITH

postal and nonpostal, of both sexes, receive wages which are superior to the wages of nonunionized private sector workers of similar socioeconomic characteristics and at least comparable to unionized private sector workers. The relative wage advantage is largest in every case for females. These observations are based only on wage rates and do not consider differences in fringe benefits, stability of employment, or intensity of work effort. Were these factors considered, the observed differentials might be even larger. But even the observed differentials suggest that there should be long queues awaiting postal employment. Furthermore, these queues should be expected to lengthen as long as the rate of increase in earnings in postal employment exceeds that in most other industries.