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Demand and Supply of NYC TaxisTerm Paper

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¶ … New York City, New York, perhaps one of the first things to come to mind is the 'yellow cab'. New York City (NYC) taxis are a staple of comedy, and an iconic image of the city, complete with the stereotypical grouchy taxi driver. Surprisingly, however, there are those who suggest that NYC does not have enough taxis for the burgeoning population and its demands for instant transportation regardless of the weather. The following report will consider why that might be the case, examining factors such as supply and demand, pricing, regulation, and the competitive market, as well as other factors such as taxes and their impact, along with supporting data. The consequences of both the NYC 'medallion system' as well as a recent 'up-scale' alternative to taxis are also presented. A particular point of focus will be to address whether the New York City taxi system can be considered to be in actuality a 'free market'.

A critical analysis of NYC Taxis:

The last time the Taxi and Limousine Commission of New York considered a hike in taxi fares, there was outcry from both passengers and taxi-drivers. The proposed hike of 20% met with antagonism from both sides at the public hearing, with passengers stating fares were already too high, and cab drivers stating that they couldn't afford to pay more. Surprisingly, Horowitz and Cumming (2014) believe that both cab drivers and passengers are correct. The inherent problem comes from the taxi medallion system, a set of New York City legal regulations that have been adopted and become part of the taxi system in other large metropolitan cities like Chicago, Seattle, and San Francisco. This system separates the legal powers, values, and properties of operating a taxi from the actual values and act of driving the taxi, in what has been called a 'lose-lose scenario' (Horowitz and Cumming). The medallion system actually is founded upon a shift of the future revenue from cab-drivers work into an asset for owners that are now freely tradable. The interests of the medallion owners - a powerful investor class of financiers - dominate over the interests of the public and even the interests of the actual cab-driver who is the 'cash-cow' for the medallion owners (Horowitz and Cumming).

In the last ten years, medallion owners have made a significant impact in the major metropolitan areas in changing how the taxi-cab system works. Repeated attempts to change the system and provide higher remuneration for cab-drivers have instead put more money, and concomitantly more power, into the portfolios of financiers. The price of a medallion has risen from a 'mere' $200,000 to over $1 million in the NYC (New York City) area. As well, the value of medallions has risen in other large metropolitan areas (such as Seattle, Chicago, San Francisco, and Boston), with the huge appreciation in value of the medallions in Chicago out-pacing the approximately 16% per annum sustained gains typical of NYC (Horowitz and Cumming). Increasing fuel costs and high costs of leasing a medallion-cab have placed untoward burdens on the cab-drivers themselves, while simultaneously the actual fare cost to the consumer has also risen.

There have been six fare increases in NYC in thirty years, intended to ameliorate some of the disparities for drivers, but actual take-home pay for drivers may actually have dropped over this same time period (Horowitz and Cumming). The non-profit Taxi Workers Alliance (TWA) has been outspoken in complaining about the inequities between medallion owners and cab-drivers and their forced servitude, perhaps akin to a system of indenturement. The current head of the TWA has described the medallion system as being 'feudal'. For a cab-driver, the day begins with assumption of a daily fee, which may be as high as $130, to the company from whom they are leasing the cab. Some studies suggest that this 'instant debt' which the driver faces at the moment the cab door is opened, and before even seeing the first customer, could correlate with the lack of quality service from NYC cab-drivers.

Besides the customer, there are three participants in the taxi business. These are: (a) the taxi driver, who must pay the medallion holder just to drive the taxi, and also has the requirement to pay retail tax for the privilege of driving; (b) the taxi dispatch company, which functions as an intermediate in several aspects; and (c) the medallion holder, who has the government-regulated 'right' to operate a taxi (The Tyranny). Fleet maintenance, scheduling, and unfortunately sporadic customer referrals are part of the infrastructure offered by the dispatch company, which is also involved as a middleman in funds transmission between taxi driver and medallion holders (The Tyranny).

In 1937, when the medallion system was first initiated in NYC, medallions were essentially licenses, valued at approximately $150 in 2014 terms (Horowitz and Cumming). In that era, low-skilled American workers actually fared fairly well, and many cabbies even owned their own vehicles. For non-owners of taxis, employment through the dispatch center included the now-vanishing employee benefits, as well as union 'perks' and advantages (Horowitz and Cumming). With cab owners actually being 'in' the taxi business, they were privy to the logistical expenses, from gas to taxes, and even partaking in daily slow-downs in the cab business, whether due to weather, or even just a 'slow day'. However, in 1979, when the Taxi and Limousine Commission of New York permitted medallion leasing, considerable changes in the entire taxi-cab system occurred. Now taxi-drivers operated as 'independent contractors' on 12-hour shifts, under Federal labor laws (Horowitz and Cumming). This change meant cab-drivers were no longer unionized, and all their employee benefits were lost, from retirement through health insurance. However, economic changes were profound in other respects as well. The physical act or value of picking up a fare had become severed from the 'right' to pick up fares, and this impact reached even operators of taxi fleets who were medallion owners (Horowitz and Cumming).

Basically, regardless of gas prices, weather, or traffic, the medallion owner, as lessor, is paid the moment his cab is picked up by the cab-driver lessee, and thus the income to the medallion owner is constant. Conversely, the driver starts out his or her day owing the medallion owner the leasing fee for the cab, and must pay that regardless of any situational circumstances (Horowitz and Cumming). Add in the limited number of medallions allowed by the City of New York, and there is a cab shortage. As of March, 2012, there were only13, 237 medallions , a number that seems immense, but is actually disproportionately small relative to the large and growing population of the New York Metropolitan area. As well, there are even more drivers interested in and competing for the opportunity to lease them (Horowitz and Cumming).

In 2006, a consulting company report found that typical take-home pay for drivers' was $158 on average, and estimates are that this number has since only decreased (Horowitz and Cumming). As stated earlier, there have been at least six overall increases in taxi-cab fares, yet the drivers are actually doing less well financially. This is principally due to the actions of the medallion owners' trade association 'hitching a ride' on any fare increase that has even the smallest possibility of helping the drivers with operating cost-increases. The Metropolitan Taxi Board of Trade, which is the trade association for the medallion owners, seems to have considerable sway over the NYC Taxi and Limousine Commission, as every fare increase has resulted in more funds in medallion owners' pockets (Horowitz and Cumming).

Taxation is a burden that also rests upon the driver of the cab. While the driver is not required to ask customers for 'B and Q. taxes', B&O taxes, sales taxes, or public utility taxes (State Tax Reporting), the driver is actually required to pay the medallion owner retail sales tax for the privilege of leasing and/or renting the taxi-cab. Collection of the retail sales tax fees for the lease/rental of the cab is generally the task of the dispatch center (middleman), who then remits these fees to the medallion owner, who will in turn send these fees to the NY Department of Revenue (State Tax Reporting). Other details of driver fees include registration with the NY Department of Revenue for income over $12,000 per annum, and this income tax is subject to PUT under the Urban and/or Motor Transportation categories (State Tax Reporting). The tax rate varies of course according to the location where the vehicle is lodged, and/or stored.

Examination of the Quarterly Prices for NYC Taxi Medallions in the Figure above reveals that the prices for individual medallions have been 'flat' at $1.05 million for several quarters, or approximately 10-12 months (Perry, 2014). This is in contrast to rising prices for individual medallions over the past decade, in which they generally rose in value quarterly before reaching the recent plateau (Perry 2014). The price increases shown represent an annual appreciation rate of roughly 14.5% between… [END OF PREVIEW]

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