Thoughts on a Fare Increase

Charles Metalitz

[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 drop.

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.