Thoughts on a Fare Increase
[A letter printed in
The Chicago Dispatcher, March 2007.
Reprinted from GroundSwell, 2007]
It's Not the Drivers Who Benefit From Increased Cab Fares
The Chicago Tribune (2/8/07) reports that a Chicago taxi medallion
-- a license to operate a taxicab in the city -- now costs $77,000.
That's up from "over $40,000 in 2004 and $28,000 in 1991 -- an
increase of about 175% in about 16 years. Of course, fares were
raised 11.7 percent in 2005, 16 percent in 2000, about 15 percent in
1997 and about nine percent in 1994. So since 1991, fares are up 48
percent and the price of a medallion is up 175 percent. For
reference, the bureau of Labor Statistics says consumer prices rose
48 percent between 1991 and 2006.
I have little direct data on drivers' earnings (the Census Bureau
reports that in 1999, "taxi drivers and chauffeurs" in
Illinois had median earnings of $24,521), but it seems unlikely that
these could have increased by more than the rate of fare. After all,
operators face increased costs for vehicles, fuel and insurance. Are
they perhaps carrying more riders, per hour worked, than in previous
years? There is no reason to think so, and the number of cabs on the
street has slightly increased.
Medallion owners seem to be taking an increased share of revenue
produced by cabbies.
Medallions Are Like Land.
This is no surprise, since medallions are very much like land
titles -- limited in numbers, provide an exclusive right to use land
(city streets) to make a living (in a particular way). Since the
tendency is for land costs to take an increasing share of total
production, one would expect the same for medallions. Meanwhile in
New York, medallions are going to over half a million dollars and
there has been an effort to set up a working medallion exchange,
where medallions can be traded on margin.
City Sells Medallions -- Who Buys ?
In one bit of encouraging news, according to industry newspaper
the Chicago Dispatcher, the City auctioned 50 new medallions in 2006
at an average price of $78,509.70.
(Originally medallions were essentially given away.) Selling
medallions does little to damp speculation or make them affordable
for working drivers, but at least it brings some revenue to the
public. With 50 medallions sold, does this mean that 50 drivers now
have their own medallions and no longer lease from others? No. There
were only six successful bidders. Two got one medallion each, and
four split the remaining 48.
How to Raise Wages?
So if the cabdrivers continue to work long hours for low wages,
how could this situation be changed? How could some of the revenue
going to buy or rent medallions be diverted to the people who
actually do the work?
This would be straightforward to do, but not easy. If
medallionless drivers could organize an effective union, they could
refuse to pay more than, say, 25 dollars a month for a medallion. I
cannot imagine that this could be done without threatening violence
but let's ignore that issue for the moment. Since the demand for
cabs would not change, the supply would not change (or at least no
much), drivers would earn more. Of course the price of medallions
Would This Help End Poverty?
So does this represent a step toward the abolition of poverty?
Not really, because to abolish poverty you must raise the general
level of wages; that is, increase the amount that a person who has
no special skills or connections can earn. But, if the wage earned
by cabbies increases substantially, what will happen to the supply
of drivers? Of course it will increase -- more people will want to
drive cabs. Pretty soon cab driving will become a difficult job to
get. Either you will need to have connections in the industry, or
you'll need some other special qualifications, or you'll just end up
on a long waiting list. So it would be difficult for drivers to
raise their own wages, and even if they succeed this doesn't help
solve the basic problem of poverty. How can we solve it. The
explanation is straightforward, but requires a bit more analysis and
thought than can be included in this letter.