From a white paper recently published by the USPS Office of Inspector General:
The ongoing debate about the comparability of postal employee wages to their counterparts in the private sector has rarely included discussion of one key element of the U.S. Postal Service’s wage structure. Private sector companies commonly pay employees based on the local cost-of-living and labor market conditions. As a result, it is well understood that someone working in Manhattan, New York will earn more than someone with an identical job in Manhattan, Kansas. The federal government recognizes this notion through well-established locality pay systems for both its white-collar and blue-collar workers. In fact, the federal government was already recognizing the importance and necessity of offering wages based on local conditions at least as early as the Civil War.
The Postal Service, however, does not pay employees based on local labor market conditions. Despite vast regional differences in labor markets and costs of living, the Postal Service pays the same wage for the same job regardless of location. As a result, postal employees can be among the highest-paid workers in some areas of the country and among the lowest-paid workers in other locations.
Paying higher wages than necessary in some locations would drive up the Postal Service’s costs. Paying below market wages in other locations may make it difficult to attract and retain a qualified, motivated work force, which may affect service quality. It is likely this may happen most often in large urban locations and other areas with strong economic growth. As an improving economy reduces the unemployment rate, the importance of this issue may increase nationwide. Additionally, the work demanded from the Postal Service is likely to be more complex in the future. It is essential going forward that the Postal Service continue to be able to attract a skilled work force in high-cost areas like major cities.
Given the Postal Service’s current financial situation, it is unlikely that it could afford to implement locality pay in a way that would incur additional costs. Nevertheless, bringing its pay systems more closely in line with the best practices of the federal government and the private sector through a locality pay system could substantially improve the long-term efficiency and value of the Postal Service’s workforce, benefiting all of its stakeholders.