NFIB

The Rising Postal Rate and Its Strain on Small Businesses
06/26/2002

The recently approved increase in postal rates will take effect in July 2002, increasing the cost of a first class letter to 37 cents. Accompanying increases of about 10 percent in the cost of both parcel post and priority mail are scheduled. Due to the Postal ServiceÆs loss of $1.7 billion during fiscal year 2001, further cost increases in first class mail (to 40 cents per ounce) are likely to occur sooner rather than later. The Transformation Plan proposed by the Postal Service in April 2002 as a means to stabilize finances would likely mean continued mail cost increases, job cuts and some service reductions. Such cost increases and service reductions will have adverse effects on small business owners, a major Postal Service customer. In addition to the obvious increased monetary outlays, more subtle effects on small business owners are likely to appear: some job losses due to increased costs, lost time and greater aggravation brought about by the need to seek alternatives, and less disposable income from a new "postal tax."

This analysis is based upon two pieces of research: an NFIB poll on the use of postal services by small-business owners (cosponsored with Wells Fargo), and the use of the NFIB Regulatory Impact Model (RIM) to study the direct and indirect effects of current and proposed postal rate increases.

Using fairly conservative assumptions, postal rate increases will directly cost small employers approximately $2.3 billion dollars. In this research document, these costs are displayed for small business firms of various sizes, based upon their size, industry and the type of postal service used. Compared to larger firms with more than 100 employees, it is highly likely that very small business owners, those with 1-4 employees, will be the most severely impacted by postal rate increases relatively. The RIM model is then used to derive some indirect costs of the postal rate increases: employment losses and declines in disposable personal income during the next three years.