The Tyranny of the Taxi Medallions

In America, we often complain about taxis. They’re never around when it’s raining, they don’t show up when you need to get to the airport, the interiors are filthy, and the drivers talk on the phone and drive aggressively. But as bad as consumers have it, the taxi drivers have it worse.

The root cause of taxi drivers’ problems is that they need access to a medallion in order to drive and make a living. Because of this, taxi companies that distribute medallion access can charge usurious fees and freely abuse the drivers. If the drivers don’t like it, well, then they can’t be taxi drivers then.

In a study of Los Angeles taxi drivers, UCLA professors Gary Blasi and Jacqueline Leavitt found that taxi drivers work on average 72 hours a week for a median take home wage of $8.39 per hour. Not only do they have to pay $2000 in “leasing fees” per month to taxi companies, but the city regulates things like what color socks they can wear (black) and how many days a week they can go to the airport (once). None of the drivers in the survey had health insurance provided by their companies and 61% of them were completely without health insurance.

Recently, the Boston Globe, published an undercover expose on the Boston taxi industry. One of their writers (who used to drive a cab in college) started driving a taxi for a company called Boston Cab. He discovered a corrupt system where medallion access empowered taxi dispatchers to abuse drivers.

The writer describes the fees drivers faced as follows: 

Boston Cab charges him the standard shift rate of $77, plus an $18 premium for a newer cab, as well as a city-sanctioned, 30-cent parking violation fee. Factor in the sales tax ($5.96) and optional collision damage waiver ($5), and his cost per shift is $106.26, not including gas.

In order to get the opportunity to pay this $106 fee, taxi drivers had to bribe the dispatchers to get good shifts or to drive at all. The author waited around for hours before he could drive a taxi since he didn’t bribe the dispatchers. (...)

A number of mobile phone apps, however, are replacing taxi dispatch services and allowing anyone with a car to become a taxi driver without needing access to a medallion. Increasingly, if you want to become a taxi driver, all you need is a car and an app that tells you where to pick up passengers.

In the last half decade, two trends conspired to end the taxi medallion regime. First, people are more comfortable with trusting strangers. This is evidenced by the success of the company AirBnB where regular people people rent out extra rooms in their home to strangers. Marketplaces like AirBnB provide the data (reviews of guests and hosts), brand, and insurance that allow strangers to trust each other.

The second trend is that we all carry around location enabled sensors in our pockets in the form of our phones. Before smart phones, the best way to find a taxi was to go outside and wait for one on the streets like an idiot. Now, you can click a button and an app that knows your location can connect you with the nearest car. Since you can see reviews of the driver, you can trust that it’s safe to get in the car.

The ride-sharing economy started conservatively with Uber allowing anyone to call a black town car via its app. That quickly led to companies like Sidecar and Lyft, that let anyone with a car act as a taxi driver and hybrid services like InstantCab that lets taxi drivers and community drivers both get fares. These companies and their products are called “ride-sharing” apps.

Cheekily, if you hail a ride using one of these ride-sharing apps, the payment is called a “donation.” This sort of seems like a made up legal loophole that can justify any behavior (“Officer I wasn’t paying for sex, I was making a donation!”). But for now that’s one of the ways ride-sharing apps nominally get around local regulations that restrict who can be a taxi.

by Rohin Dahr, Priceonomics |  Read more:

Image: uncredited