Taken for a Ride: The taxi medallion system in New York and other cities raises fares, impoverishes drivers, and hurts passengers. So why can't we get rid of it?

Taxi Medallions: How New York's terrible taxi system makes fares higher and drivers poorer

When New York City first issued taxi medallions in 1937, they were just licenses, worth $150 in today's terms. In the years after, life was pretty good for cabbies, as it was for many low-skill employees in postwar America. Some drivers owned their cabs. The rest were unionized employees who worked on commission and received a full slate of employee benefits.

Crucially, the owners were in the taxi business and took on the risk that entailed. If gas prices went up, that came out of the owners' pockets. If drivers had a bad shift, the owners did too.

All that began to change in 1979. That year, New York's Taxi and Limousine Commission changed its rules to allow medallions to be leased out for 12-hour shifts, making cabdrivers "independent contractors" under federal labor laws. The move cost such drivers their benefits, but the real fallout was far more profound. Even for medallion owners who operated their own taxi fleets, the economic value of the right to pick up fares was now severed from the value of actually doing so.

It turns out that the former business is a hell of a lot better than the latter.

Under a medallion lease, the medallion owner has a constant stream of income. Drivers are the ones who suffer when gas prices rise or a cab gets stuck in traffic--they've still got to make their daily lease payments. More importantly, New York's tight limits on the number of medallions in circulation has suppressed the supply of cabs. There are 13,237 medallions now outstanding, a few hundred fewer than in 1937, but a huge supply of drivers competing to lease them.

It's amazing that NYC has the same number of medallions now as in 1937, but apparently SF has only 1,500! Which is more than I thought, I'd have guessed 60.

Previously.

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42 Responses:

  1. tjic says:

    So regulation screws the common man and enriches the entrenched powers that be?

    Well, OK, the libertarians are MAYBE right just once, but clearly they're wrong about every other single case...

    • Mark says:

      A stopped clock is right twice a day.

      • chris t says:

        Still more often than most clocks, drift being what it is. (Yes, the fact that the stopped clock will never tell you what time it is doesn't escape me.)

    • Lun Esex says:

      (song plays over only a single rotation) <skip>
      (song plays over only a single rotation) <skip>
      (song plays over only a single rotation) <skip>
      (song plays over only a single rotation) <skip>
      (song plays over only a single rotation) <skip>
      ...

    • Chris Lawson says:

      Libertarianism (the retarded bastard child of Austrian school economics) doesn't have a monopoly on believing that bad government regulations are bad.

    • nooj says:

      jesus christ, shut the fuck up.

      i have a rule about songs. i call it "the fifty times rule". the rule goes like this: if your song repeats a word or phrase fifty times or more, your song sucks. there are no exceptions to this rule. we heard you the first fifty times.

      you're not even a song and you fail the fifty times rule. you've been banned before for doing the same shit. knock it off and don't make him turn off anonymous replies.

      • I bet he doesn't even notice people edging away from him at parties.

      • tjic says:

        > jesus christ, shut the fuck up.

        You know, after I posted that, I realized "I am starting to sound like a broken record player".

        so: apologies.

        I'll try to shut up on the topic.

    • jmags says:

      Once again, NO. What happens is private interests use their money to purchase regulations that serve their interests. The system currently in play is EXACTLY the system for which you advocate. Turns out it's a terrible system.

      • Rick C says:

        Playing Devil's Advocate for a moment: you're wrong. In the libertarian (e)utopia nobody would be able to create such regulation--anyone would be able to get a medallion (or, rather, there wouldn't be any such thing and anyone could be a taxi driver.)

        • Brian B says:

          So this would mean imposing a ban on the market for regulations?

          • Rick C says:

            I think a libertarian would argue that in a libertarian utopia there would be no market for regulations. The hand of the State isn't there to enforce the regulations.

            • Brian B says:

              That's only if very few or no people want to get an advantage on others. If enough people decide they want to get ahead, they create demand (a market) for the hand of the State to help them do it.

    • Grey Hodge says:

      This is such a terrible argument. Epicly bad, yet libs keep using it. Regulations are TOOLS, and like any tool can be used for good or bad. Anti-monopoly regulations, good. Taxi medallion regs, bad. Regulations that prevent banks from owning the entire world, good. Those same regulations going totally unenforced for the entire Bush administration, as well as Congress mandating the suspension of FDIC insurance payments during that same period? Bad. This argument that all regulation is bad is trivially easy to disprove that it really just makes libs look dumb. Please get better arguments.

      • Anthony says:

        Please actually understand the argument being made. Public Choice Theory shows that every single regulatory regime will tend towards being captured by rent-seeking interests, except those which started out completely captured by rent-seeking interests.

  2. Hub says:

    Same kind of sh*t here in Vancouver. http://thedependent.ca/featured/taxiland/

    And look at the prices of said licenses.

    • Jeremy Wilson says:

      Same problem in Toronto, too. We introduced the Ambassador Taxi program to fight it but it's still a racket. Entire families will work 24 hours a day running a single cab while the license owner rakes it in.

    • Edouard says:

      I can't follow that at all - is there a more straight forward explanation? But I do like pictures of kittens, even tiny ones.

      • DFB says:

        The reason corporations are charged "income" tax on profits instead of receipts is so they will grow the economy by choosing to hire and produce more. But when the effective corporate tax rate dips below the expected return for hiring more, corporations just bank profits. Therefore, raising the effective corporate tax rate is a good idea.

      • James says:

        Sorry, calling the local maxima from unamortized prisoners dilemma a "local minima" is only emotionally true.

        • Jeremy Leader says:

          One man's maxima are another man's minima.

          • James says:

            In prisoners dilemma situations, both parties to a transaction can lose wealth even if they naively believe they are acting in their interest. The trick is to show the amortized outcome of the various choices. In this case, there are more ways to defect than cooperate (lots of tax loopholes) so it appears that taking some or all of them is possibly superior to the correct solution.

  3. Maks says:

    Nice to know its a world wide problem

    Here in Melbourne, the license owners are frothing at the mouth about the proposed reforms of paying a fixed cost of $20k a year for new license holders to enter the market (licenses currently trading hands for $500k).

    • Marcello says:

      yeah, it's good to see that the "taxi system" is f*cked up almost everywhere in the world.

      strangely where i live (italy) the government, at least on a local lever, is actually trying to make things BETTER for the public, but the taxi lobby (which is right wing biased, with a strong xenophobic component) always manage to hold reforms back.

  4. dolface says:

    Uber, despite being problematic in a bunch of ways, is looking pretty good as a result of this crap. Naturally, some people have a problem with this.

  5. TProphet says:

    Here in Beijing, enterprising drivers just ignore the laws and paint fake taxis, complete with fake meters. If they're ever caught, the traffic police are easily bribed. It makes it a lot easier and cheaper to get a cab - the starting fare is about $1.60 and it's about 33 cents per KM after that. Legal taxis and illegal ones generally cost about the same price, although you can negotiate a lower fare if you don't need a tax receipt.

    • nooj says:

      I'm not sure why we don't have illegal taxis here, but they're in Europe, too!

      I was out with a friend, the bar we were at had closed, and it was time to bounce to an after-hours club. I pulled out my phone to look up the metro stations.

      My friend wasn't in a mood to hang around at a train station. Train stations meant no one was buying drinks. It meant there was no music. She pointed to a car and said, "Oh, there's a taxi." I looked at her funny--well, we were both pretty drunk, so we looked at everything funny--and said, "No, babe. That's someone else's ride." It took a while to remember the word for "ride." Translating is hard when you're drunk. I was trying to figure out how to explain to her that just because someone else's friend had a car and was being nice, it didn't mean we were going to get to tag along. But then I figured that my friend has tits, so maybe we could.

      And without taking her eyes off the car, she reassured me, "Watch. It's a black taxi." "Huh?" I was really confused. It had no taxi stuff on it, and everyone knew all the taxis were painted black. This car was red. It was definitely not a taxi. She walked over to it and climbed right in. She said a price and a bar as I was getting in. I'm not sure what they said, but the driver was happy, and she was happy, so I was happy. It turned out she bet him $20 that he couldn't get us there in less than two minutes flat. The guy took off so fast I didn't have all my limbs in the car and we nearly clipped some other drunk people as we sped away.

      I've never been so terrified in a car. I didn't know the laws, but I was pretty sure we broke some. We went through red lights. We squeezed between buses. The driver had his entire arm and head out the window at one point yelling at someone as we went around them. I wasn't sure I wanted to spend my last few seconds on this earth looking for a seatbelt, so I just stared in openmouthed horror at what passed for driving in Southern Italy.

      We got there in one piece. After that I learned to close my eyes and trust her to know her way around.

  6. Anonymous Coward says:

    There sure seems to be a lot of large cities who have decided that it's a good idea to limit the supply of taxi licenses. Are there cities which do not? What happens in those cities in comparison to those which limit license availability? Is there a specific negative outcome the policy is intending to avoid?

    Pardon the question spam. But when I see a policy which is widespread and with obvious shortcomings, I start to get curious about how it came to be so widespread.

    • Ian says:

      Well, London limits the supply, but via a test - the famous 'Knowledge' - of geography. You have to memorise everything (and that means everything) about 320 sample routes. It takes about three years to learn it all. Some people are willing to rent you a cab and a fake licence for a reasonably large pile of money if you cannot be bothered to do all that work. Fares are regulated, and the taxi drivers association lobbies for increases in fares and for increases in restrictions on the competition, such as the minicab system for vehicles that have to be booked in advance and not hailed on the street.

  7. Edouard says:

    Checking for New Zealand regulations ... "To become a taxi driver you need to have held a Class 1 licence for at least two years and have a passenger (P) endorsement, which includes police clearance". Total cost, under NZ$100. Also: "Opportunities for taxi drivers are generally poor, as there is an oversupply of people in the role and demand for taxi services has fallen".

    It's one of the things I've always had trouble understanding about America - why government monopolies are so common when I hear so much that a) government bad, and b) free market good.

    • RT says:

      That's because we don't practice what we preach... :)

    • captain18 says:

      Do as I say, not as I do.

    • relaxing says:

      a) The internet people you hear from are probably not representative of Americans in general.
      b) It actually goes i) profit good ii) government-supported profit better iii) unless it is politically advantageous to say otherwise

    • Brian B says:

      There is a thriving free market dealing in corrupt government officials (elected and non-) and in regulations that favor those already in power. Rhapsodists for the "free market" usually either don't realize this market exists, or don't want you to realize it.

      • Lun Esex says:

        U.S. government. The best (worst?) that money can buy.

        Who says free markets are in opposition to government? This government is a free market.

        It's funny how much money is thrown at getting "less government" candidates elected, when what the money throwers actually want isn't really "less government," because then there'd be that many fewer government officials for them to buy.

        It's like how the worst thing in the world for anti-abortion campaigners would be for abortion to actually be made completely illegal, because then they'd lose one of their major rallying cries to get that socially conservative block of Americans out to the polling places to vote.

        (Of course each side characterizes the others as the sharks, and is hoping for scenario result 2. But with humanity sharks simply spontaneously evolve from fish, so they're never going away.)