Why would a non-government-sponsored firm have difficulty remaining in operation incurring $7 billion in losses per year? b. Why might a government-sponsored firm such as the USPS be more willing than a non-government-sponsored firm to agree to non-layoff contracts for workers?

Assignment:

 

4. The USPS operates a network of more than 31,000 post offices. The majority of these post offices do not generate revenues sufficiently high in relation to costs to justify keeping them in operation. If the USPS were truly a private firm, many of these post offices would be closed.

Until recently, what has enabled the USPS to keep these post offices operating in spite of their meager rates of profitability has been the receipt of an implicit subsidy in the form of protection from competition. The USPS is the only institution in the United States authorized to make regular deliveries of “non-urgent letters” to mailboxes of households, businesses, and government offices. Thus, the USPS faces no threat of being undersold by competitors in its primary business of delivering non-urgent mail.

In spite of these government protections of the USPS, the annual volume of mail handled by the USPS has fallen from 213 billion items per year in 2006 to about 165 billion items per year today. As a consequence, postage revenues at USPS have plummeted even as its labor expenses have remained nearly unchanged. Since 2007, the USPS has experienced average annual losses from its operations exceeding $7 billion per year.

What allows the USPS to continue operating without employee layoffs in spite of annual losses exceeding $120,000 per USPS worker per year? The answer is the sponsorship of U.S. taxpayers. The federal government continues lending funds to the USPS to enable it to keep providing the same level of services with an unchanged workforce. Few observers anticipate that the USPS will ever repay the loans, which likely will become explicit subsidies to this government-sponsored institution.

a. Why would a non-government-sponsored firm have difficulty remaining in operation incurring $7 billion in losses per year?

b. Why might a government-sponsored firm such as the USPS be more willing than a non-government-sponsored firm to agree to non-layoff contracts for workers?