Labor vs capital datapoint of the day, NYC taxi edition

By Felix Salmon
January 22, 2011

taxi.jpgNew York taxis are a textbook example of gains going to capital rather than to labor. They’re generally owned by one person — the person with the capital — and driven by another — the person with the labor. And the person with the capital has made out very well of late. When the stock market peaked in October 2007, medallions were trading at $425,000 apiece. (All data from this page.) By the time the market had plunged by more than half in February 2009, medallions had risen in value to $552,000. And they’ve only gone up in value since: in December 2010, the average medallion changed hands for $624,000; last Wednesday, a new all-time record was set for a corporate medallion which sold for $880,000.

Meanwhile, drivers earn nothing like that kind of money. Getting reliable statistics for taxi-driver income is not easy, but it seems to average out somewhere around $130 per shift — which is actually less than the the amount the drivers pay to lease the taxi. And remember that the owner leases out the car for two shifts per day, while the driver can only work one shift.

It’s pretty clear to me what’s happening here. The medallion owners hold the power, and will charge whatever they can to drivers. If anything happens (a fare hike, say) which improves drivers’ income, then the rents just get jacked up: there’s a lot of demand for taxi-driving jobs, and so essentially the owners just rent out their taxis to the drivers willing to pay the highest shift fee and therefore take home the lowest income.

When someone like Melissa Plaut, then, starts complaining about a proposed rule change on the grounds that it will reduce drivers’ income, I think that she’s missing the bigger picture. It’s the owners who reduce drivers’ income, by charging them as much money for the privilege of driving a cab as they can possibly get away with.

Meanwhile, it’s the mayor’s job to try to create a system where yellow cabs and livery cabs coexist to maximize the welfare of New Yorkers — the general population first, and the drivers second. The medallion owners come a distant third.

Somehow, annoyingly, the medallion owners always end up the winners here, and that doesn’t seem fair to me. None of them were hurting when medallions were fluctuating in value between $200,000 and $250,000 in the years from 1998 through 2003. And for the past eight years or so they’ve been laughing all the way to the bank.

If drivers have an issue with their income, then, they should take up their beef with the medallion owners. But instead, every time that the city proposes something to improve the taxi system more generally — like issuing more medallions, or putting credit-card readers in cabs, or putting meters in livery cars — the drivers reflexively side with the owners. Anything which might hurt medallion owners, they assume, will automatically hurt drivers as well.

Which I’d agree with, if it weren’t for the fact that drivers have signally failed to participate in the good fortune of the owners over the past decade. It’s time I think for the mayor to start putting in protections for cab drivers, which might get an important constituency on his side when it comes to making these kind of changes. Even if doing so annoys a handful of politically-powerful medallion owners.

Update: Plaut responds in the comments.


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This is a conundrum because if there a demand for taxi cab driving jobs exists, capitalism dictates that the price paid to the taxi cab driver will drop until the demand for the taxi jobs backs off a bit.

If the taxi cab drivers were paid a better wage, they could probably eventually afford to buy their own taxi cab and even combine with other drivers and start a competing taxi cab company.

Posted by SWARMtheBANKS | Report as abusive

The “there” in the first sentence was not needed, sorry about that. Would be nice to have five minutes to fix grammatical errors.

Posted by SWARMtheBANKS | Report as abusive

Felix, I absolutely agree that medallion owners are the main source of the problems within the taxi industry. If I had my way, I’d abolish the medallion system altogether, and eliminate the independent-operator model, which requires cabbies to pay in order to work, with no protections, insurance, benefits, or regular guaranteed wages. Sadly, all that is just fantasy. Even if Bloomberg and Yassky were prepared to radically alter the very nature of the taxi industry, you can be sure the medallion owners would do everything in their considerable power to block them. There’s simply too much money to be made in the medallion business, which as you point out, is never seen by the men and women behind the wheel. Unfortunately yellow cab drivers have to pick their battles (like opposing meters in liveries, for instance) and fight for the few benefits they actually do receive under the present, deeply flawed system.

Posted by melissaplaut | Report as abusive

Without the Marxist twaddle, one would say that since medallions (not cars or drivers) are the scarce resource here, it is the medallions (or their owners) that bear the burdens and gain the benefits of changes in the regulations (or, e.g., gas prices, or other costs).

Prices not being perfectly flexible, some changes that incide directly on the drivers do seem to affect them for a time; my brother, one of the most economically educated former taxi drivers in the country, thinks that a period of a year or two is a good estimate. A short term spike in gas prices comes out of drivers’ pockets; a sustained rise will reduce the values of the medallions.

Your chart of price gains of medallions would seem less directly relevant to me, incidentally, than a chart of the rental income. Some of the price rise is surely due to a reduction in the availability of other investments, viz. a drop in interest rates generally. How much might be due to changes in expectations of future rental rates is another confound.

Finally, in re your very first sentence, I’ve typically been struck by the taxi industry as exactly the opposite to the usual capital/labor arrangement from what is usually seen. If you look throughout economies at “firms” — units of economic production primarily independent of each other in terms of decision making, and are internally coordinated by more direct means than a price system, at least proximately and in the short run — then it is often easy to conflate “management” (or “firm owners”) with “capital”, insofar as firms typically own the capital but — since the thirteenth amendment in this country — do not own the labor. Economic profits thereby get conflated with “returns to capital”, when in principal they are different. Taxi drivers operate as independent firms (in a truer sense than many “independent contractors” do), but they own the labor and generally rent the capital. Residual profits will look more like labor income, and less like capital income; if one driver has a better system than another, that can’t be extracted from him by medallion or vehicle owners, and will appear (within the naive dichotomy) to be “wages” rather than “capital returns”.

Posted by dWj | Report as abusive

Please explain your data point of the shift income vs shift lease cost. It makes no sense that the drivers could survive more than a week if they bring in less income than the fixed lease cost. I assume that the income must be net income, not gross.

Probably one of the reasons that it is difficult to get a handle on driver incomes is because of the amount of cash business. There is probably much unreported income. Any equipment that makes it easier to use debit and credit cards is likely to shift more of the income from cash to plastic which now becomes recordable and taxable, especially tips. I suspect that at least some of the resistance to increased machines is to reduce the number and quality of transaction records.

Posted by ErnieD | Report as abusive

The “price” of a medallion, should be re-set, relative to feedback related to the licence. NYC cabs could then compete on service. so for example positive or negative feedback about driver experience would determine part of the cost of the medallion or a fee to the city. consumers are the ultimate losers in this game which means medallion owners squeeze as much revenue at the lowest possible unit cost of service and labor out of the medallion. A hybrid (cash and experience) ratings medallion bidding model would make this service $400k X 10k = $4billion asset perform at some real world level of service. As it is now cabs only appear clean and safe relative to the subway experience, with both horrific in absolute standards of service.

Posted by Nick_Gogerty | Report as abusive

This is a great example of private profit from a public good. The issue here is that the supply of medallions, other than a tiny increase a few years ago, has been held basically flat since 1937 and is now a little over 13K.

Consider that prior to the Great Depression there were over 30K taxis in the city. The number of medallions was fixed in 1937 at 16,900 but fell to a little under 12,000 during the balance of the Depression as prospective licensees were unwilling to pay the $10 fee to transfer the Medallion. Since then, the demand for taxi services has increased accompanied by a substantial lobbying effort by medallion owners to oppose any increase in supply. The price increase depicted in your graph shows the rewards of cronyism in NYC government to the detriment of the riding public. The inadequacy of supply is also seen in the rise of the livery industry which is substantial in size.

An increase in the supply of medallions would drive down the lease rates and improve the income of drivers. This could be paired with a cut in fares to share some of the gains with the riding public. This would, of course, depress the price of medallions, but that is one of the risks of investing capital. Further, there is no evidence that the medallion system was set up with the intention of createing a capital asset for the medallion licensees. This is something that evolved over time as the supply of medallions fell with non renewal and then was not allowed to expand with demand as the medallion owners lobbied to keep the supply fixed.

The right way to distribute leases would be to create a bidding system, similiar to the way concessions are given to hot dog vendors in the park. Combined with an increase in supply, this would keep lease prices at a reasonable level and enable a reduction in fares to which have increased far in excess of inflation (from $6.85 in 2004 to $11.71 in 2010. Fares In Nyc&d= i/taxifb.pdf&s=629.38 a9194a1da0e4be2f9dab202b.html

Posted by Equityval | Report as abusive

Two shifts per day at $130 each translates to a bit over 90,000/year. If I can buy that income stream for $880,000 than that works out to roughly a 10% yield. Pretty nice in this market.

Even if $5,000 in annual capital costs and $25,000 in fuel costs come out of my pocket I still get nearly a 7% yield. Unless there are substantial costs I’m missing medallions look pretty attractive in a low interest rate enviroment.

I don’t get to NYC very much but I know that Cab Drivers in Chichago do really well for themselves. I would be shocked if drivers there made less than $25/hour. “Keep the change” really adds up. They deserve every penny though… I’d have a heart attack in week if I had to deal with that constant stress!

Posted by y2kurtus | Report as abusive

I remember seeing Chicago cab driver income before. I think it was $13k/year and worked out to like $4/hour. But they probably don’t record a lot of their income which is also then tax free income.

Posted by sditulli | Report as abusive

If you think that the medallion system is bad (I agree it isn’t the best way to do things) then you need to find another way to ration taxi licenses. Medallions aren’t purely political graft, they are intended to prevent conjestion in lower Manhattan (just like the proposed conjestion charges). A previous poster pointed out that there are around the same amount of medallions as there were in the 30′s. This makes sense as the Manhattan road infrastructure hasn’t changed much since that time (capacity is about the same).

Without the medallion system the number of cab drivers would triple overnight and the bridge, tunnels and major avenues would be quickly clogged. Therefore you would need a random lottery or a first come first serve waiting list or some other form of rationing. Both of there are still rationing and people would still try to sell their rights to be a cab driver under any rationing system.

Posted by TurtleBay | Report as abusive

“Two shifts per day at $130 each translates to a bit over 90,000/year. If I can buy that income stream for $880,000 than that works out to roughly a 10% yield. Pretty nice in this market.”

Your numbers are a little off. The maximum amount a cab leased out to drivers can earn over a year is $82,524. This assumes that the cab had a driver every day and every night and that it never broke down. The day shift maximum charge is $105 not $130. The maximum night shift charge is $129 and that is only for Thursday-Saturday. Sunday-Tuesday is $115 and Wednesday is $120.

You’ve also left out of your calcultions the cost of the car. Let’s call it $27,000 and you are required by law to buy a new one every 3 years. If the owner drives the car 219 shifts per year, he need only replace the car every 5 years. You are also required to provide all maintenance, insurance, and workers comp.

I paid $614,000 for my medallion and $26,500 for the car. I drive Mon-Fri night shift and I lease out the other shifts to other drivers.

Posted by xNYCMarc | Report as abusive

Excuse me, but I’d just like to point something out that you all may be missing:

I am a medallion owner, I own half of a corporation of two medallions. I bought it in 1977 and worked my ass off for 34 years to get where I am today. I deserve all that I’m getting now. I’m not wealthy but I can retire with some steady income. Is anything wrong with this? I don’t think so.

I think your all jealous. Just because the taxi business is in the public eye doesn’t make it public property. We are all private businesses that have done well. There are many other cases of businesses that have done well that are not in the public view. Perhaps you should pick on some of them!.

Posted by abienyc | Report as abusive

“I am a medallion owner, I own half of a corporation of two medallions. I bought it in 1977″

what did you pay for your medallion, 5k ? 10k ? 20k ?

I am surprised you did not sell it in the last year for a million or two and retire, ;)

Posted by sam234566 | Report as abusive