The U.S. Postal Service will try to cut 120,000 to 220,000 workers; the number depends on the source of the information. The Washington Post was the first medium to report the agency’s plans. The decision could represent another significant drag on job creation, particularly in the public sector, which is where most job losses have happened since the start of the year.

The planned reduction would be spread over as many as four years. The USPS could also try to exit the federal health and retirement programs, which add to its cost burdens. Unions have provisions in place to prevent some of these actions. But the Postal Service has leverage in that it will run out of money later this year. It can begin the sort of brinksmanship that was at the core of the debate about an increase in the federal debt cap. The game of chicken is about to commence, as the American Postal Workers Union and National Association of Letter Carriers have already started their objections.

The July unemployment figures showed that the public sector lost 37,000 jobs while the private sector added 154,000. The trend in public job losses will continue. States and municipalities have shed workers at a rapid pace, and federal government austerity plans will ramp up as Congress seeks to lower deficits.

The USPS plan demonstrates just how important public sector jobs will be to the economic recovery. Even if the cuts are done between now and 2015, the average drop per year would be over 50,000. Add this to all of the other austerity programs and the figure balloons.

The move toward government austerity is relentless. States and local governments have discovered that capital markets have grown reluctant to fund their budget shortfalls and pensions. The U.S. has been lucky so far. Its borrowing costs have stayed low, even after the S&P downgrade to AA+. If deficits remain high, however, most economist believe that the flight to safety that has helped keep Treasury yields down will eventually end.

The USPS plan to make huge cuts in its worker base may embolden government at all levels to look at even their most essential services. A drop in mail services nationwide, which has been part of America for decades, shows that nearly no cost is sacred.

Douglas A. McIntyre

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