Table of Contents

Multi-Modal Competition and the Future of Mail

Multi-Modal Competition and the Future of Mail

Advances in Regulatory Economics series

Edited by Michael A. Crew and Paul R. Kleindorfer

This compilation of original papers selected from the 19th Conference on Postal and Delivery Economics and authored by an international cast of economists, lawyers, regulators and industry practitioners addresses perhaps the most significant problem that has ever faced the postal sector – electronic competition from information and communication technologies. This has increased significantly over the last few years with a consequent serious drop in mail volume.

Chapter 7: Do Volume Increases and Decreases Have the Same Effect on Labor Hours?

Michael D. Bradley, Jeff Colvin and Mary K. Perkins

Subjects: economics and finance, competition policy, public sector economics


* Michael D. Bradley†, Jeff Colvin‡ and Mary K. Perkins§ 14 15 16 1 INTRODUCTION The overwhelming majority of postal costs are labor costs and the study of the response of labor hours to volume changes has been a major focus of postal costing analysis. It has been the central topic of a number of previous papers across the range of postal functions. Studies have examined the responsiveness of hours to volume changes in various activities and in many cases found cost elasticities significantly lower than one (see Bradley and Robinson, 1988; Bradley and Colvin, 1995, 1999; Cazals et al., 2001; Gazzei et al., 2002). However, this result is most pronounced in studies of delivery costs (such as Cazals et al., 2004a, 2004b; Bradley et al., 2006; Farsi et al., 2006). Indeed, the notion that hours would increase more slowly than volume accords well with one’s intuition regarding the delivery activity. However, how do workhours behave when mail volume is falling rather than increasing? Intuition suggests that hours would fall more slowly than volumes, but by how much? Is there a symmetric response in hours to volume increase and decreases? Until recently it has not been possible to answer this question empirically, since no observations, or very few, existed for falling volumes. With the end of the era of persistently rising volume many posts now face the possibility of ongoing volume declines arising from a mixture of long-term trends (electronic diversion) and stagnation. This raises the question as to whether the...

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