A quarter of the city’s yellow cab fleet now sits idle, because drivers, unable to earn enough in these recessionary times to make ends meet, aren’t showing up for work. “Somehow or other, if you don’t make it economically attractive for people to drive taxis, the public’s not going to have taxis,” said Mayor Michael Bloomberg last week. Bloomberg’s solution: a fare hike. “You probably will see some kind of a rate increase,” he warns.

But Bloomberg’s reasoning has multiple flaws. First, though cabs are out of circulation, there’s no real evidence of a taxi shortage. Most likely, the idle vehicles represent simply an adjustment of supply to a drop in ridership demand that has resulted from the national recession, intensified in New York City by September 11. As the businessman-mayor will remember from Econ 101, you don’t respond to sagging demand by raising prices. You will only chase more customers away, so that every dollar you gain in higher fares will be lost by decreased ridership.

Second, the reason drivers are staying away is not that taxi fares are too low. They won’t drive because the formula by which they are compensated means that in bad economic times they really cannot make a living. Most drivers lease their cabs from companies that own not only the vehicle but also the city license—the medallion, so called—to use the car as a yellow taxi. The driver must pay the lease cost up front—some $100 per day, not including the additional cost of gas, another $20 or so daily. So he doesn’t make a penny for himself until he has put $120 on the meter. Then, on a good day, he can earn maybe $10 an hour for himself, which is why most cabbies work 12-hour shifts, six or seven days a week. On a bad day—and since September 11, with business and tourist travelers scarce, New York cabbies have had a lot of bad days--he makes small change and sometimes ends up going home poorer than he started, since he has earned less than the cost of the lease and the gas.

The idle cabs are a problem not for New York’s taxi riders but for the city’s taxi fleet owners, a powerful lobbying force in city politics. They have been pressing Mayor Bloomberg for the fare hike, claiming that the extra money might get more of their drivers to show up. But even supposing (what is not true) that raising fares would not cut demand for taxis further, a fare hike would not increase the supply of drivers unless you also supposed that all the projected increase would go to them, not to the fleet owner. In the past, however, owners have benefited far more from fare increases than drivers, and there’s no reason to think things would be different this time.

Consequently, under no circumstances should the mayor raise fares, which would only make things worse. Instead, he should advise the owners that if they want more cabs back on the street, they should cut the lease fees they charge, just as airlines sell seats at a discount when their planes don’t fill up. The owners might decide that it is worth making $75 a day, say, rather than zero, from their capital equipment—a price at which drivers might find it worth their while to come to work.


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