This city, home of the nation's largest postal system, is a major battleground for the U.S. Postal Service and unions determined to hold onto their jobs in the face of federal fiscal austerity and increasing automation.

The New York Post Office, where 24,000 of the nation's 666,823 postal employes work, has been visited by battle before. Postal workers here in 1970 sparked the largest federal walk-out to date -- a nine-day, national wildcat strike joined at its height by 200,000 U.S. mail employes.

Postal union officials say they want to avoid repeating 1970's events when the current, national three-year pact with USPS expires at midnight July 20. But they and the managers who employ their members are worried because of numerous pressures threatening labor peace.

A key point of stress is the congressional mandate that the Postal Service, created by the Postal Reorganization Act of 1970, become a self-supporting operation by 1985. The Reagan administration, which wants to strip $632 million from the $1.5 billion federal postal subsidy for fiscal 1982, seems in no mood to extend that deadline.

Many postal officials believe they could lose the race for independence if they don't reduce labor costs that consumed 84.57 cents out of every dollar of the $19.4 billion the Postal Service spent last year, leaving the service with a $306 million deficit.

In 1979, $506.7 million of the $540.2 million spent by the New York Post Office went to labor costs. Even so, NYPO finished 1979 with a $87.4 million surplus, largely because of the heavy volume of business mail generated in the New York area.

But in 1980, the Nypo lost ground in the systemwide drive for self-sufficiency. Even though its revenue increased to $666 million from $627.6 million the previous year, its surplus was smaller -- $62 million. The reason: increased costs, especially for labor.

"We have financial pressures . . . . Out main problem in meeting the 1985 deadline is controlling labor costs," said William J. Dowling, New York district director of mail processing.

Other pressures come from rapidly increasing mail volume and the corresponding need to move mail more quickly.

Mail volume across the nation shot up from 99.8 billion pieces in fiscal 1979 to 106.3 billion pieces last year. The New York Post Office was flooded with more than 5 billion pieces in fiscal 1980, a 4.6 percent increase over 1979.

Both management and union officials at USPS are keenly aware that the problem boils down to one of productivity. The Postal Service either must move more mail with the same or fewer employes, or it will be replaced in large part by machines that can handle the job.

Waiting in the wings are such companies as the Virginia-based GTE Telenet Communications Corp., with its "Telemail" system serving 100 companies and 5,000 subscribers in a network of more than 200 cities. The system uses bunched electronic signals to send and receive by screens and terminals business reports once moved by USPS trucks and letter carriers.

"The technology exists right now to put USPS out of business," said Stephen G. Woods, an industrial engineer and floor manager here at the General Post Office, sister station to New York's Morgan General Mail Facility, the most automated processing center for outgoing mail in the Postal Service.

"The only way we can delay the inevitable, or maybe stop it, is to make our system more productive, more efficient, and less costly," Woods said.

That means pushing workers harder, making them "working smarter," or replacing them with machines, according to postal officials.

Therein lies the rub, one that is expected to prove particularly irritating when the four unions representing 578,000 postal workers open contract negotiations with USPS. Those talks were to begin April 22, but last-minute legal maneuvering by Postmaster General William F. Bolger aimed at determining the "appropriate" bargaining structure, could delay negotiations indefinitely.

USPS figures show that postal workers are among the most productive in the nation, registering a 5.5 percent productivity increase in 1980 alone. "This amount far exceeds the gross postal productivity of any other nation," the USPS said in its 1980 annual report. By comparison, NYPO had a 3.7 percent productivity increase last year.

Gross national postal productivity increased 34 percent -- 23 percent for New York -- since the 1970 reorganization act. Nationally, that means it took 741,000 postal workers to process and deliver 85 billion pieces of mail in fiscal 1970, compared with the 666,823 employes used to deliver the 106.3 billion pieces generated last year.

Dowling, NYPO's mail processing director, cites automation as being a major factor in the productivity increases. "We've seen an awful lot of mechanization of postal operations in this city in recent years," he said. However, he and other postal officials here insist that none of their workers will be laid off ot make room for automation -- although USPS, in its 1978 labor talks, fought for and won the right to lay off workers hired since September of that year.

In the New York Post Office, machines will take over the functions of many workers lost through "normal attrition," Dowling said.

That bothers union leaders like Josie McMillian, 40, president of the New York Metropolitan Postal Workers. "We have lost thousands of jobs through attrition. And I guess we could get down to the point where we're representing 10,000 instead of 21,000 workers if this keeps up," McMillian said. "But," she added, "we'll represent whoever's there."

Said Dowling: "I know the union worries about jobs being lost through automation. But, I have my worries, too. I'm young and I like to think I have a long career ahead of me in the Postal Service. But if we don't automate and improve production, we're going to lose out to the competition.

"If all we're going to be left with at USPS is Christmas card delivery, then you sure as hell don't need a person like me for that. And you sure as hell don't need a work force of over 600,000 people to do that, either."