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Debt Relief Coming for Taxi Medallion Holders 🚖
Last week saw the end of a 46-day long protest, including a 2-week hunger strong, outside of City Hall in New York City. The protesters weren’t upset about high rental prices and they weren’t advocating to increase the city’s minimum wages. This group of protestors was looking for the city’s help in another area that is an iconic part of the New York landscape: taxicab medallions. Protestors sought debt relief related to their (or their family’s) previous investments in those medallions, which are now worth much less than what they were 7 years ago due in part to New York City’s (lack of) regulatory action. A group of drivers already filed a class action lawsuit against the city earlier this year.
In order to operate a yellow cab in the city of New York, the cab must have a special medallion affixed to the cab. The medallion can be transferred to different cabs or sold to different companies, but active cabs on the street must have that special plate on the car. It may not seem like much, but it was a valuable asset at one time and was treated in the same way many families treat home investments.
The New York City medallion system started in 1937 when local politicians passed the Haas Act and limited the number of licensed cabs to about 16,900. That numbered fell some during the Great Depression and many cab drivers gave back their medallions during World War II when faced with gasoline rationing. The final number of medallions settled around 11,787 and remained at that number until 1996. Recognizing the incredible population growth of New York City over that time period, the city decided to issue… 133 more medallions.
A permit that used to cost $10 in 1936 (about $200 in today’s dollars) soared to almost $20,000 in the 1990s. In 2014, the average price of a medallion peaked at around $1 million each. Cab drivers (and cab companies) took on an incredible amount of debt to finance these assets, but the value of medallions started falling. While some of those prices are based on resale values, the city did issue new medallions over the years and benefited from their growing value. Medallion prices began quickly declining around 2014 and then got significantly worse during the pandemic:
Many cabbies shoulder debts as high as half a million dollars and more — loans they incurred after the pre-pandemic collapse of the taxi industry. The medallions that were once worth as much as $1 million dropped to a fraction of what they cost, due to the growth of app-based rideshare companies like Uber and Lyft.
This was just one part of the reason for recent protests outside City Hall over the past few months. The city had already set up a Medallion Relief Program last year to account for the decline in value of medallions following the introduction of ride-hailing applications. The latest issue, however, centers on the impact of the pandemic on ridership. Both industries have been hit hard, but only one of them paid hundreds of thousands of dollars to the city to operate in their industry:
Uber officially launched in New York City in May 2011, but it took a few years before it really took off and competed closely with traditional yellow cabs. At that point, it seemed almost unstoppable. Uber itself was a great application of Schumpeter’s theory of creative destruction: a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” As the prevalence of Uber and Lyft cars increased on the narrow streets of New York City, the price of a medallion plummeted.
The introduction of Uber and other ride-hailing apps falls in line nicely with the traditional model of supply and demand. A new competitor enters the market, offering a similar product, and demand for the original sellers decreases. Taxicab owners can respond by lowering prices or increasing the quality of their service to justify the original price. The actual app itself is famous for responding to supply and demand changes with its surge pricing feature. The heavy regulation in the taxi market made it a natural target for ridesharing apps to prevail, but many of the cab drivers were left holding debt that they assumed could be paid off like a mortgage because of the government protection that existed for decades in their industry.
Some economists don’t believe you should feel bad for these taxi drivers, but they were likely sold a medallion by the city that they believed would be protected through continued government regulation. Instead, NYC largely let ride-sharing apps operate unregulated in the beginning. It was only in 2018 that NYC voted to cap the number of for-hire cars on the roads. The city is starting to recognize the burden that’s been placed on cab drivers because of the city’s attempt to regulate the market. It now seems like the city is going beyond recognition and is starting to pay for the burden they’ve created.
There were 2,821,515 yellow cab rides in New York City in July 2021 alone [NYC Taxi & Limousine Commission]
Yellow cab riders paid a total of $56,085,050 in July 2021 for rides in New York City [NYC Taxi & Limousine Commission]
New York taxi medallions sold for an average of $107,378 in June of 2021 [Craine’s New York Business]
The average yearly salary of a taxi driver in the New York metro area was $40,860 [US Department of Labor]
Week #44 is over and the book total sits at 63 books for the year. Last week I finished a book that was a collection of interviews with people associated with The Office. Some of the stories were really interesting and it convinced me to watch a lot of scenes from The Office on YouTube while I was reading the book. It was also fun seeing some of the scenes in the book and remembering that some of these scenes are mentioned on The Economics of The Office website.