The Socio-Economic Benefits of the ZIP Code

National Journal

The postal service may be in a financial vise right now, but fifty years ago it created an economic legacy–one now reportedly worth billions of dollars a year. On July 1, 1963, it introduced the five-digit ZIP Code.

It can be a symbol of wealth, the basis for a community, and a handy research tool. The behemoth seniors lobby AARP even has its own–20049–as does the Naval Academy's Bancroft Hall dormitory in Maryland. And, according to a new report out this month from the U.S. Postal Service Office of Inspector General, the ZIP Code is worth about $9.5 billion a year. The USPSOIG teamed up with IBM to do the analysis and found that four groups benefit, roughly equally, from the existence of the ZIP Code: the postal service itself to the tune of $2.2 billion; firms that use it for mail-related products get about $2.1 billion from the ZIP Code; firms that use it for non-mail products get a value of $2.4 billion; and consumer, governments and non-profits benefit to the tune of $2.9 billion.

Estimating the economic impact of something as intangible as the ZIP Code is difficult, of course: some uses could not be calculated; assumptions had to be made; and some of the data were dated. But there’s no denying that the ZIP Code is an innovation whose benefits have far exceeded its original intent. Here’s how the report puts it:

“The code was originally intended to allow mail sorting methods to be automated but ended up creating unimagined socio-economic benefits as an organizing and enabling device. The ZIP Code became a social tool for organizing and displaying demographic information, a support structure for entire industries such as insurance and real estate, and even a representation of social identities as observed in the television series Beverly Hills, 90210. Today, the ZIP Code is much more than a tool for moving mail efficiently, and its positive spillover effects are enormously beneficial to society.”

ZIP Code-style codes have even found a home in the slums of India, where at least one nonprofit is using them to “address the unaddressed.”

The History of the Code: Mr. Moon and Mr. Zip

The ZIP Code was hardly the first or last time numbers were used as unique identifiers–the telephone system had relied on numbers for decades, as does the modern underpinning to the internet. And West Germany is credited with introducing the world’s first modern postal code system in 1961, though the idea had U.S. proponents well before that.

Philadelphia Postal Inspector Robert Moon had advocated for a code system for nearly 20 years before Postmaster General Edward Day in the early 1960s suggested combining Moon’s three-digit code with the existing two-digit system.

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The idea of a five-digit ZIP Code alone wasn’t enough–it would be useless without a high adoption rate. And Day had been warned: executives at AT&T noted the difficulty they had in getting the public to adopt area codes. So, following in the footsteps of West Germany–which saw an 80 percent adoption rate in its postal code’s first year–the U.S. Postal Service launched an educational campaign, embodied by the cartoon character Mr. Zip. Zip is actually an acronym for "Zone Improvement Plan." He was plastered in post offices, on postal workers, on AT&T trucks and in local phone directories:

“Public service announcements were broadcast on radio and TV, one of which featured a group called the Swingin’ Six singing the benefits of the ZIP Code. Lesson plans were designed to encourage teachers to introduce the ZIP Code to young children. Mr. ZIP was seemingly everywhere, and his whimsical characteristics helped win over the American public — by 1969 the vast majority of Americans were in favor of the ZIP Code system. Mr. ZIP had helped the Postal Service achieve almost 100 percent ZIP Code compliance before he was retired in 1983.”

What’s Next

The ZIP Code has been used to track demographic changes, target marketing, calculate loan risk for banks, and guide diversification of university classes. But there’s still room for improvement. One of the biggest ways to improve the address system, according to the USPSOIG report, is to add in latitude and longitude coordinates, known as geocoding. By geocoding addresses, postal workers could more efficiently plan out their routes and marketers could more accurately target their audiences. 

There would be broader benefits, too. "Imagine a large hurricane is approaching the outer banks," the report states. "The regions of highest risk could be identified through [Geographic Information System] mapping software. Then, if the [Address Management System] were geocoded, citizens in ZIP Codes of the high risk areas could be identified and alerted through the Postal Service’s vast communication network.”

Adding geocodes could also help more accurately understand things like real estate values. Rather than simply relying on the broader ZIP Code borders, researchers could analyze home prices as a heat map. Policymakers could use the geocoded addresses to analyze the exact impact of a new highway, development or shopping center. Researchers in the United Kingdom have reportedly found that a one-percent improvement in address data could yield the equivalent of roughly $33 billion. 

(h/t Timothy Taylor at the Conversable Economist and economist Justin Wolfers.)

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