A special note for people in the taxicab business:

You may have found our site while searching for information on the price of taxicab medallions. Although this paper discusses how that price is determined, it isnít the best source of current market information or contacts.

But if you are interested in understanding why cabdrivers are faced with long hours and low earnings, why the medallion is the most expensive part of the cab, and how the problem of poverty might be solved, please do look at this paper, which is only about two pages long. And if you want to obtain a fuller understanding about how the economy works, then you should learn the ideas of Henry George. While the best way to learn is in our classes, we also offer courses over the Internet. Or you can obtain our main textbook, Progress & Poverty, read it yourself, and we will be happy to discuss it with you. From this page you can download the text on-line for free, or purchase copies.

Henry George School Research Note # 6:
It's Not the Drivers Who Benefit from Increased Cab Fares

The Tribune (2/8/07) reports that a Chicago taxi medallion -- a license to operate a taxicab in the City-- now costs $77,000 1 . That's up from "over $40,000" in 2004 2 and $28,000 in 1991 3 -- an increase of about 175% in about 16 years.

Of course, fares were raised 11.7% in 2005 4 , 16% in 2000 5 , about 15% in 1997 6 , and about 9% in 1994 7. So since 1991, fares are up 48%, and the price of a medallion is up 175%. For reference, the Bureau of Labor Statistics says consumer prices rose 48% 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, 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 the cabbies. .

Medallions are Like Land

This is no surprise, since medallions are very much like land titles: Limited in number, 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 for 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 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 cab drivers 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/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, and the supply would not change (or at least not 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 which 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 Note. Information is available at the Henry George School.

Footnotes:
1 "Chicago hails two driven cabbies" Tribune, 2/8/07
2 "City says cab agent misused $100,000" Tribune, 4/25/04)
3 "Metro Briefings", Sun-Times, 7/17/91)
4 "Cab riders turned off by rooftop 'not for hire' light," Sun-Times, 12/9/05; "Increased taxi fares quietly take effect," Tribune, 5/12/05
5 "For taxi drivers, fare hike is not without a price," Tribune 12/1/00
6 "Taxi fares get a boost", Sun-Times, 1/14/97
7 "City Cab Fares Go Up Today," Sun-Times, 1/18/94

Prepared by:
Chuck Metalitz
Henry George School/Chicago
February 9, 2007