The real taxi squeeze play
A familiar drama played out in the Boston City Council chambers yesterday, where taxi drivers and city regulators accused rideshare drivers of operating illegally, and called for sweeping regulations of services like Uber and Lyft. It was a milder rehash of an episode that played out six months ago in Cambridge, when taxi interests tried to regulate taxi alternatives out of business. And although the episodes make for good copy — WBUR quotes one taxi driver today saying Uber is “sucking the blood of the taxi drivers” — they also miss the real squeeze play taxi drivers are caught in. The real conflict now isn’t between taxi drivers and rideshare drivers; it’s between taxi drivers and the failing economics of an outdated medallion system.
For the better part of a century, the taxi industry has enjoyed lucrative local monopolies: Cities place limits on the number of taxi medallions in the market, and the owners of the scarce medallions grow rich off them. The Washington Post noted this summer that medallions in New York cost $1 million apiece, with medallions in Boston trading for around $700,000 (well more than the cost of a secondhand liquor license). A Globe Spotlight Team investigation last year showed that the concentration of scarce taxi medallions in a few hands had made it nearly impossible for taxi drivers themselves to make a decent living. The Globe found cab dispatchers collecting bribes to put drivers on the road, and noted that medallion owners rent out their cabs to drivers at rates that are so steep that it takes most of a driver’s shift to break even. The paper found drivers working long hours, and barely cracking the minimum wage.
Uber and Lyft, which allow riders to hail rides from a smartphone app, have wreaked havoc with the taxi industry’s business model. The Post found that taxi medallions, once the most lucrative investment in America, were cratering in value: A Chicago auction last fall attracted no takers for 50 new medallions. A recent New York Times analysis found medallion prices dropping by 17 percent in New York and Chicago, and at least 20 percent in Boston. And those are the prices on medallion trades that actually happen. A spokeswoman for the Boston taxi drivers union told the Times medallion owners are having trouble selling medallions at far steeper discounts, saying, “Nobody’s touched them.”
Last year, Felix Salmon argued in a post on Reuters that the decimation of the taxi medallion business should be a great thing for both riders and drivers. Uber and Lyft are booming because they’re far cheaper to ride than traditional taxicabs, but they’re also allowing drivers to make more money, because the companies are collecting a far smaller cut of fares than taxi drivers pay when splitting fares with medallion owners, or paying medallion owners hefty upfront fees.
The shift of riders from taxis to ridesharing services is shrinking the pool of customers for taxi drivers, and making it even harder for them to eke out a living. That’s what had longtime Boston taxi driver Malik Abbas protesting outside Boston City Hall yesterday, and telling WBUR, “Financially, we cannot make money. I don’t want UberX coming over here stealing our jobs.” The problem is, the old model wasn’t very good for drivers in the first place. Now it’s breaking down. And for anyone who doesn’t have millions of dollars tied up in taxi medallions, things can only get better.
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