by Bruce Schaller
and Gorman Gilbert

This is the second of a three-part series examining key policy and service issues in the New York City taxicab industry. The first paper found that deficiencies with taxi service stem from inadequate driver wages and difficult working conditions. Building on this key finding, this paper evaluates the widespread notion that the medallion system, under which the number of licensed taxicabs has not increased in over 50 years, is to blame for poor driver wages, difficult working conditions and problems with service quality. Critics of the medallion system urge that "competition" in the form of additional cabs be let loose to spur better service. The analysis below finds that the growth of taxicab leasing over the last 15 years has had a far more pernicious effect on service quality than has the medallion system. The authors conclude that any serious attempt to improve service must address leasing rather than simply focusing on the medallion system. The next and final paper appraises nine strategies for improving service, evaluating the efficacy of city regulation and the potential for market-based policies.




.....Where Does the Money From Fare Increases Go?
.....The Promise of Competition
.....The First Wave: Fleets Convert to Leasing
.....The Second Wave: Minifleets Convert to Leasing
.....The Third Wave: Individually-owned Cabs and Leasing
.....Summary: the Impact of Leasing on Taxi Driver Incomes


Table 1. Effect of Fare Increases on Fleet Driver Income
Table 2. Effect of 1987 Fare Increase on Income of Drivers Who Lease by the Week
Table 3. Fleet Driver and Owner Income, 1981 and 1986.
Table 4. Fleet Driver Income, 1986 and 1993


In films and television shows, the New York City taxicab industry symbolizes the city's brazen vitality. To many, it also symbolizes the failure of government regulation to achieve the public's desire for readily available, courteous, and comfortable taxi service. In the wake of national deregulation of the airline and trucking industries, New York taxi regulation looks increasingly archaic to critics ranging from newspaper editorialists to academicians.

There is no doubt that City regulation has shaped nearly every facet of the industry. The number of taxicabs is set by law at 11,787. No new taxi licenses have been issued for over half a century, making the taxicab medallion (which is merely an aluminum plaque bolted to the hood of each cab) the central symbol of the regulatory system. And regulation goes well beyond the medallion cap. A city agency, the Taxi and Limousine Commission (TLC), sets the taxi fare, licenses taxi drivers and vehicles, adopts rules that drivers and cab owners must follow, and puts each taxicab through an extensive inspection three times a year.

Despite regulatory restrictions and the conscientious efforts of a sizable contingent of taxi owners and drivers, the flow of service complaints seems unending. The most frequent complaints concern drivers' communication skills, ability to find passengers' destinations, courteousness, reckless driving, refusal to pick up some passengers (particularly minorities and passengers bound for the outer boroughs), and overcharging. While these complaints focus on drivers, there is a broad understanding that the root of service problems lies in the system in which drivers work.

One focus of criticism is drivers' conditions of employment. The average lease driver works 11 hour shifts1 for a total wage averaging $65 to $84 a day. This cash wage constitutes the totality of drivers' compensation; lease drivers receive no paid vacation, no health insurance, no social security coverage, no unemployment insurance, and no pension. A veteran American-born driver points out the link between driver quality and working conditions, commenting, "who else but an immigrant from an impoverished land would be willing to tough it out in this miserable hustle?"2

What regulatory actions would improve the job and attract and retain well-qualified drivers? This question is keenly debated whenever TLC considers increasing the taxi fare. During these debates, critics charge that the medallion system robs drivers of any chance to benefit from a taxi fare increase. One of the most vocal critics is Edward G. Rogoff, who wrote a dissertation on the taxi industry in 1979 and has condemned every proposed fare increase since then. He writes that a fare increase

will only do what past increases have done -- drive medallion prices higher -- without improving the earnings and quality of drivers.3 The net effect [of a fare increase] will be higher medallion prices, not better service.4

The New York Times' editorialists also link driver quality to the distribution of a fare increase, declaring that,

About two-thirds [of a proposed fare increase] should go to drivers . . . Once drivers are better paid and better treated, New Yorkers can demand that they provide better service.5

How best to funnel money to drivers and better service? Reform the medallion system, these critics urge, lift the lid on the number of vehicles and introduce free market competition. Writes the Times:

Beneficiaries of a city-chartered monopoly, [taxi owners] can lease their official permits to garages or agents, take their commissions and watch their investments appreciate.6 The necessary fundamental reform is to break the back of the "medallion" licensing system.7 [T]here can be no fundamental improvement until city officials take on the taxi owners' monopoly.8 Protected from greater competition, taxi owners have a powerful incentive to resist providing better service and to push for ever-higher fares. . . . [T]he goal must be to eliminate medallions altogether and let anyone who meets qualifications go into the taxi business.9

Elizabeth Roistacher, a City University of New York economics professor who consulted to a mayoral committee studying the taxi industry in the early 1980s, seconds the editorial writers:

Eliminating or relaxing entry restrictions remains the first essential step to improving the quality and quantity of taxi services. . . . The quality of services ought to be controlled by competition for riders.10

In sum, these critics believe that the medallion system artificially allows taxi owners to earn enormous profits, which inflate the value of medallion licenses while leaving drivers with crumbs and the public with lousy service.

This critique has profoundly influenced the City's attempts to reshape the taxi industry. Former Mayor Edward I. Koch expended considerable effort in the mid 1980s on unsuccessful attempts to ease the cap on the number of taxicabs. Koch's successor, David N. Dinkins, also attempted to expand the number of taxicabs.

Do critics of the medallion system pick the right target for City reforms? Are taxi service problems properly traced to the medallion system? If the critics had their way and the City reformed or abolished the medallion system, would drivers become fluent in the English language, unfailingly courteous to passengers and quick to find Jane Street? And if not, what is the cause of service problems and what issues must regulators address to correct them?

This paper attempts to answer these questions. We begin with an assessment of the key assertions of critics who advocate "fundamental reform" of the medallion system. We analyze how the New York City taxi industry actually works, how money from fare increases flows to owners and drivers, and how medallion prices behave after fare increases. We also assess whether "competition" (e.g., open entry) would spur better service.

This appraisal reaches the conclusion that the critics' case is deeply flawed. We conclude that the critics are wrong on key facts, and the critics' faith that an open-entry system would improve service is misplaced. Having set aside the medallion system as the fundamental problem, we then discuss what we believe is a far more important problem -- the leasing of cabs to drivers for a flat fee.


The medallion system dates from a Depression-era city law designed to address an overabundance of taxis that depressed driver earnings and congested city streets. After rejecting the recommendations of a series of mayoral panels studying taxi problems, the city Board of Aldermen in 1937 adopted the Haas Act, which slapped a moratorium on the issuance of any more taxicab licenses. Over the next several years, the number of cabs, which had peaked at 21,000 in 1931, fell from 13,500 in 1937 to the present number of 11,787 because the licenses of taxi owners leaving the industry were not reissued.11

While the vehicle cap is its most famous provision, the Haas Act had other significant and enduring features. It provided for the automatic renewal of vehicle licenses and allowed for the transfer of licenses between owners, conditioned only on City approval of the new owners' qualifications. This transferability provision was vital to the subsequent establishment of license values. The Act also erected a wall between fleet-owned taxi licenses and individually owned licenses, a clause intended to ensure the survival of owner-drivers.

The Haas Act also created a mechanism under which the city could issue additional vehicle licenses after a deliberative administrative process.12 This provision, which some critics of the Act have ignored,13 was never exercised and was removed in a 1971 rewrite of the law. When the City failed to expand the taxi industry despite post-World War II economic growth, taxicab licenses developed a trading value in the open market. After four decades of often-explosive increases, individually-owned licenses now trade at $155,000 and fleet licenses at $220,000 each.


The critique of the medallion system hinges on two main assertions:

  1. City regulators' attempts to improve driver earnings through taxi fare increases are doomed to failure because of the medallion system, which funnels all additional revenue to owner profits.
  2. The medallion system protects taxi owners from the greater competition that would force them to raise driver wages and improve service quality.

Each of these assertions can be evaluated against actual experience.

Where Does the Money From Fare Increases Go?

TLC has increased the taxi fare twice in the last 15 years: by 22% in May 1987 and by 12% in January 1990.14 Critics' belief that fare increases do not help drivers can be tested against the facts surrounding the 1987 and 1990 fare increases. We can look to see whether drivers did benefit from the two fare increases by first examining the record for drivers who lease cabs from taxi owners, and then for owner-drivers.

Lease Drivers

Under a lease arrangement, a driver pays the taxi owner a flat amount for each shift or each week. The driver then has exclusive use of the cab for that period of time. Owners are guaranteed the lease fee for each shift (or week) the cab is leased, regardless of how much time the driver actually works or how much money the driver takes in. Drivers' earnings are the difference between their total revenues (fares and tips) and their expenses (lease fees and gasoline).

The key issue is whether increased lease fees completely offset the rise in fare revenue, or whether drivers retain some of the additional revenue from fare increases. Table 1 summarizes the split of revenues in 1987 and 1990 for fleet drivers, who lease by the shift from a central garage that TLC officially recognizes as a fleet.


                                                        Change in take-
          Fare, Tip &      ---Expenses-----    Take-      home income 
            Surcharge      Lease                home      from before 
             Revenue        Fee    Gasoline    Income   fare increase

Early 1987  $137.85       $60.00    $13.50     $64.35 
1988         166.81        72.50     13.50      80.81       +26%

1989         166.81        74.20     13.95      78.66         
1990         186.09        80.75     13.95      91.39       +16%

Sources: Taxi and Limousine Commission, "Taxi Industry Cost and Revenue Analysis," 
March 1987;  Bruce Schaller, "The Taxi Industry, 1991"  Taxi and Limousine 
Commission, October 1991; unpublished data.

In 1986, fleet drivers took home about $64 on average after subtracting the lease fee and gasoline expenses from gross revenue. After the 1987 fare increase, gross revenues increased by 22% and lease fees by 21%. Drivers' take-home income rose to about $81 a shift, an increase of 26%. In a similar fashion, fleet drivers' income increased by 16% after the 1990 fare increase.

Drivers leasing by the week appear to have benefited even more than fleet drivers. Gross revenues from fares and tips increased by 27%, boosted over the 22% after the 1987 fare increase (the 22% increase in the meter fare plus the extension of a 50 cent per trip evening surcharge from the fleets to all cabs). (See Table 2.) Typical weekly lease fees rose by 20% while other expenses increased by only 4%. Total costs paid by drivers thus increased by 14% for double-shifted cabs. With income outrunning cost increases, driver incomes jumped by 41%.

Anecdotal information indicates that incomes of weekly lessees rose by at least 12% after the 1990 fare increase, although data are not available to confirm this.


                                   1987    1988    Increase
Fare and tip income               $1,508  $1,910     +27%
Medallion lease                      375     450     +20%
Vehicle lease                        125     150     +20%
Vehicle maintenance, gasoline, fees  295     307      +4%
Total costs to drivers               795     907     +14%
Net weekly income per driver        $356    $502     +41%
Net income per shift                 $62     $88     +41%

Table reflects income and expenses for double-shifted cabs.  Medallion is 
leased from taxi owner and vehicle is either leased from owner or bought from 
owner on conditional sales contract, whereby driver takes title after making 
final payment.  

All figures weekly except where noted.

Source: unpublished TLC data.


Owner-drivers own the medallion license and so pay no lease fee. No one questions that owner-drivers directly benefit from fare increases. Critics believe, however, that the financial gains reach existing owner-drivers only. According to the critics, fare increases lead to higher medallion prices, which negate the benefits of a higher fare for drivers purchasing taxi licenses at the higher prices.

The facts tend not to support this argument. Look first at medallion prices. While medallion prices rose following the May 1987 fare increase, from $100,000 in the first half of 1987 to $125,000 by the end of the year, they fell after the 1990 fare increase, from $135,000 in the fall of 1989 to $125,000 in the summer and fall of 1990.

The second issue is that an increase in medallion prices does not necessarily reduce the incomes of succeeding groups of medallion buyers. Incomes fall only if payments on the loans used to finance medallion purchases rise. These payments were essentially unchanged after the 1987 fare increase. The reason: the term of the loans became longer. Monthly payments were $1,490 for 10 year loans used to buy $125,000 licenses after the fare increase, the same payment as needed for seven year loans used to buy $100,000 licenses before the fare increase. With monthly costs unchanged, owner-drivers took home higher incomes after the fare increase than before, regardless of when they bought their license.

There was a price to be paid, of course, as those who bought after the fare increase made three more years of loan payments. Longer loan terms affected only a small number of owner-drivers, however, because medallion licenses turn over very slowly. Between the 1987 and 1990 fare increases, for example, only 25% of all individually-owned medallion licenses were sold. Thus, even at the time of the 1990 fare increase, 75% of all individual owners were still benefiting from the 1987 fare increase.

Why are the critics wrong?

Why don't taxi owners raise lease fees to absorb all of the additional revenues from each fare increase? The answer to this question lies in the details of a union contract, the competition for drivers among industry segments, and a sense of fairness that does exist among both owners and drivers.

Drivers for the long-established fleets, representing about 1,800 cabs, are still unionized. The union contract caps lease fee increases at one-half of the additional revenues from a fare increase. Thus, unionized fleet drivers are guaranteed to share the proceeds from a fare increase equally with fleet owners. Other taxi owners follow suit. In part, they are compelled by competition for drivers; if nonfleet owners raised lease fees excessively, drivers would flock to the unionized fleets. There is also now an expectation in the industry that fare increases will be split between owners and drivers, making it more difficult for lessors to take all of a fare increase.

The Promise of Competition

The finding that fare increases are evenly shared between drivers and owners is a blow to the critics' case against the medallion system, but not necessarily a fatal one. Critics still argue that driver wages are too low and owner profits too high (points with which the authors agree). They assert that this imbalance is correctable by "competition" in the form of an open-entry system, with no cap on the number of taxicabs, that would force owners to raise wages to attract better drivers and improve service.

Would a "competitive," open-entry system improve driver wages? The most useful way to answer this question is to move beyond theory and look at situations where such competition exists today. As the following discussion shows, driver wages are not in fact improved by open-entry systems; if anything, the reverse is true. Competition is not the answer to inadequate driver compensation.

Medallion/nonmedallion competition for airport trips.

Despite medallion cabs' "monopoly" on legal street hail service in New York City, the number of vehicles providing taxi-type service is not actually limited at all. In addition to medallion taxis, there is a large "nonmedallion" industry, whose official moniker is "for-hire vehicles" (FHVs). FHVs legally serve prearranged trips; many FHVs also pick up street hails despite the legal prohibition. In practice, FHVs serve the same types of trips and some of the same geographic areas as do medallion cabs.

The critics' theory would predict that competition from FHVs would force taxi owners to improve their services, at least in whatever area FHVs can give taxis a run for their customers. The most direct competition occurs with airport trips. These big-ticket trips are highly prized by many drivers, and passengers, who tend to plan airport trips in advance, have the opportunity to choose between prearranged and hail services.

Over the last decade, FHVs have made great inroads into the airport business. According to a survey of airline passengers, more New Yorkers travel from Manhattan to the airports by FHV than by medallion taxicab. Of all New York area residents traveling from Manhattan to LaGuardia, 38% took an FHV, 35% took a taxicab and 27% some other mode in 1990-91. The comparable figures for Manhattan to Kennedy trips were 42% FHV, 16% taxi, and 42% another mode.15

New Yorkers appear to prefer FHVs for several reasons: the certainty of a pre-determined, flat fare; a greater confidence that the driver will find his way without incident; and in some cases, more comfortable cars and/or the convenience of being picked up at one's doorstep.

Has the competition for desirable fares spurred taxi owners to improve their service? Have they cut down on overcharging (a reason riders prefer FHVs' flat fare)? Have taxi owners trained drivers on airport routes? Have owners improved the quality of their cars? Any of these steps would represent a competitive response to FHVs' growing share of airport trips. Taxi owners have taken none of them. Instead, they have let the airport business slip away.

Driver wages in the open-entry FHV industry.

If open entry systems lead to higher driver wages, one would expect that FHV drivers would earn more than taxi drivers. Neighborhood car services, which comprise the bulk of the FHV industry, constitute a good comparison group since they serve the same types of trips as do taxis (with the only difference being the part of the city served) and because drivers work the same number of hours as do taxi drivers. Yet car service drivers take home between $40 and $100 a shift -- most on the lower end of the range -- compared with $65 to $84 for taxi lessees.16 In short, drivers in an open-entry system literally next door to the taxi industry are paid no better than taxi drivers.

Deregulated cities.

Several smaller cities removed vehicle limits in the 1980s, in part to improve taxi service. The results were disappointing. A study of cities that deregulated their taxi industries could identify service improvements in only one city.17 Price Waterhouse, in its recent study of taxi regulation, found that 21 cities deregulated taxi services prior to 1983, and no cities have done so since.18

Why are the critics wrong?

Why does competition not lead to better service? There appear to be three sets of reasons, dealing with market failures, basic economics and institutional inertia. The first factor is the most fundamental. For competition to be an effective force in the market, consumers must be able to compare the quality and price of competing services and choose the better value. This process is very difficult with taxi service. Passengers hailing a cab have little or no opportunity to assess the driver's knowledge of geography, politeness or English-speaking ability, and even less chance to compare competing providers and choose among them. There is also little opportunity to select or avoid a taxicab based on previous experience. What's more, one of the main reasons to take a cab is to get to one's destination quickly. Time spent comparison shopping may offset whatever gain in quality is achieved.

Basic economics also plays a key role. Taxi ridership is most likely inelastic with respect to supply, meaning that a 10% expansion in the number of cabs produces something less than a 10% increase in the number of paid-for trips. As the number of vehicles expands (meaning more competition), each driver brings in less in fares. This is hardly conducive to increasing driver earnings or devoting money to fielding better cars.

The final factor, institutional inertia, is not hard to understand when one recalls that the New York taxi industry has held a protected franchise for over half a century. Taxi owners have been content to serve passengers who step into the street seeking a ride.

In sum, neither of the main charges leveled against the medallion system bears up to scrutiny. Driver incomes do in fact rise with fare increases. And "competition" or open entry does not bolster driver incomes.

If not because of the medallion system, why are driver working conditions and wages inadequate? If reform of the medallion system is not the remedy, what is? The next section posits an answer.


Leasing has had a far more pernicious effect on driver incomes and working conditions--and service to the public--than has the medallion system. In reshaping the relationship between owners and drivers, leasing dramatically improved owners' financial position and worsened that of drivers. This largely untold story, which is critical to prescribing a solution to taxi service problems, unfolded in 3 stages.

The First Wave: Fleets Convert to Leasing

Fleet owners switched from a commission-based compensation system, in which drivers shared a percentage of each day's fare revenue, to leasing for new drivers "hired" after TLC legalized leasing in 1979. By the mid 1980s, nearly all fleet drivers were lessees.

Leasing produced two major changes for fleet owners and drivers:

These developments combined to benefit fleet owners substantially. In 1981, when most fleet drivers were still paid on commission, fleets retained for expenses and profits an average of $33 per shift after paying driver commissions, fringe benefits, and gasoline costs. By 1986, with leasing predominating, fleets' comparable income was $57, a 72% increase over 1981. (See Table 3.)


                                   1981        1986        Change
Fare revenue per shift         $  99.91      $114.49        
Evening surcharge                  5.32         5.38        
Tips                              15.78        17.98        
Total revenue                    121.01       137.85        +14%
Owner gross income (a)            45.27        60.00        
Gasoline expense                 (12.15)           0        
Workers comp expense                 n/a        3.05        
Owner gross for comparable 
operating expenses & profit (b)   33.12        56.95        +72%
Driver cash take-home from fares  39.49        46.37        
Tips                              15.78        17.98        
   Subtotal (cash compensation)   55.27        64.35        +16%
Value of fringe benefits          14.19        3.05        
Total driver compensation         75.74        67.39        -11%

All data are per shift.

(a) "Owner gross income" reflects fleet owner's percentage of fares and 
surcharge in 1981 (not including payments to driver welfare fund) and 
lease fees in 1986.
(b) "Owner gross for comparable operating expenses and profit" shows 
income available to the owner to cover a consistent set of expenses (e.g., 
vehicle purchase, insurance, maintenance and dispatch, overhead expenses, 
etc.) and profit.  Gasoline expense and workers compensation expense is 
subtracted from gross income in those years that fleet owners paid this 
expense out of gross income shown in table, to create a fair comparison 
with years that they did not pay each expense.

Sources:  "Analysis of Trip Cards and Maps of May 19, 1981 and 
September 16, 1981" in Mayor's Committee on Taxi Regulatory Issues--
Consultant and Staff Studies, 1982, Table 1; Gorman Gilbert, "Operating 
Costs for Medallion Taxicabs in New York City," prepared in October 
1981 and published in Mayor's Committee on Taxi Regulatory Issues--
Consultant and Staff Studies, 1982; Taxi and Limousine Commission, 
"Taxi Industry Cost and Revenue Analysis," March 1987; Bruce Schaller, 
"The Taxi Industry, 1991"  Taxi and Limousine Commission, October 
1991; unpublished taximeter data.

By contrast, fleet lease drivers received substantially less compensation in 1986 than did commission drivers in 1981. In 1981, the average fleet driver took home $55 in cash. Including the value of fringe benefits (priced at their cost to fleet owners), fleet drivers earned about $76 a shift in 1981. In 1986, all fringe benefits (except for workers compensation) were gone and lease drivers took home $64 a shift in cash, and $67 when the cost of workers compensation is included. Fleet drivers' total compensation thus fell by 11%. Since the work day lengthened by 15% during this period, total driver income on an hourly basis declined 23%. If one also accounts for the rise in living costs during this period, drivers' real incomes fell even further.

Leasing practices have been stable among fleets since the mid 1980s. With this stability, fleet driver incomes have only kept pace with inflation, despite two fare increases. As Table 4 shows, from 1986 to 1993 fleet driver incomes increased from $64 to $84, but after correcting for inflation, driver income declined by 5% from $89 to $84.

Table 4. FLEET DRIVER INCOME, 1986 AND 1993.

     Fare, Tip &    ---Expenses----    ---Take-home Income-----
       Surcharge    Lease              Current    1993     Pct.
        Revenue      Fee    Gasoline   dollars   dollars  change
1986    $137.85    $60.00    $13.50    $64.35    $88.53    
1993     182.81     82.69     16.20     83.92    $83.92    -5%

Sources: Taxi and Limousine Commission, "Should the Taxi Fare Go Up?" 
March 31, 1994; Taxi and Limousine Commission, "Taxi Industry Cost and 
Revenue Analysis," March 1987; unpublished taximeter data.

The Second Wave: Minifleets Convert to Leasing

Minifleets were born in the early 1970s as two-thirds of the fleets went out of business in the wake of, among other things, financial gains by a strong drivers' union. Fleet owners sold their licenses to this new category of owner--minifleets--in which two drivers jointly created a corporation, each driver owning one-half of the stock. The corporation then bought two medallions, and each stockholder drove one of the taxicabs. This approach was attractive to prospective owner-drivers since fleet licenses were selling for half the price of individually owned licenses. For the purpose of the Haas Act, these were still "fleet" licenses since they were owned in groups of two or more. But, operationally, they looked and acted like owner-drivers. In 1981, the large majority of the 4,700 minifleet cabs were driven by stockholders.The lucrative income offered by leasing changed that, swinging the pendulum away from owner-driving. When minifleet owners quit driving, their cabs were more likely to be leased than sold to another pair of minifleet owner-drivers. By the end of the 1980s, nearly all minifleet owner-drivers had been replaced by lessees.

As it took hold among minifleets, leasing took a much different form compared with fleet leasing. Minifleet owners leased cabs for periods of months rather than by the shift. Minifleet owners often leased the medallion license by itself rather than the medallion with a fully out-fitted cab. In this "medallion only" lease, the lease driver provided and maintained the car and managed the day-to-day operations of the cab. Owners paid for insurance, taxes and license fees.

Initially, minifleet lessees operated with substantial leeway. The lessee typically arranged with another driver to operate a second shift for at least a few shifts here and there, if not every day. The medallion owner gained nothing from such subleasing, however.

By 1993 the typical practice had changed. Minifleet lessors now leased to two full-time drivers separately, charging each driver an average of $310 a week compared with $375 per medallion license in early 1987.20 Minifleet owners' lease income totaled $620 a week,21 a 52% increase from the $375 in early 1987.

How did higher lease fees affect minifleet drivers' incomes? Did fare revenue increase as rapidly as lease fees? It is clear that minifleets' revenue increased substantially between 1987 and 1993 as more cabs were double-shifted regularly.22 How this trend affected particular minifleet lessees is unclear, however, due to a lack of pertinent data. Most likely, different lessees were impacted quite differently, depending on whether they had maximized utilization of the cab. An enterprising lessee who had subleased five to seven days a week in 1986 would most likely be worse off under current lease arrangements. In this case, lease revenue going to the owner nearly doubled while there was little opportunity for the lessees to increase revenue from a doubled-shifted cab. Conversely, a minifleet driver who did not sublease in 1986 would probably be better off now, paying a somewhat lower weekly lease fee while working the same amount.

The Third Wave: Individually-owned Cabs and Leasing

Individual owners began to follow the same course as minifleet owner-drivers in the mid 1980s, leasing their cabs upon retirement or selling to a new owner who leased from day one. By 1990, only 52% of individually-owned cabs were owner-driven. TLC adopted a rule, effective in 1990, to preserve owner-driving and return the individual medallion license to the original 1937 concept.23 Three-quarters of all individual cabs are now owner-driven.24

Summary: the Impact of Leasing on Taxi Driver Incomes

Leasing damaged drivers' position in the taxi industry in a multitude of ways:


The New York taxi medallion system has long been criticized as the culprit behind taxi service problems in the city. The reasoning behind this assertion is simple: good service depends on good drivers; good drivers demand higher wages; and the medallion system keeps driver wages low. Hence, the critics argue that to fix taxi service problems it is necessary to scrap the medallion system.

The actual workings of the New York taxi sector are more complex than the above reasoning assumes. TLC data confirm that better drivers do provide better service, and common sense argues that good drivers depend on better pay. It is only in the supposed role of the medallion system in affecting drivers' pay that the reasoning breaks down.

The analysis shows that drivers' wages are not kept low just by the medallion system, nor does the medallion system keep all fare increases from reaching drivers. In fact, the two most recent fare increases yielded financial benefits that were shared by taxi owners and taxi drivers. Moreover, in the non-medallion New York cab sector driver wages are still lower than for yellow medallion drivers. These facts suggest that low driver wages are not simply a result of the medallion system.

Instead, as these results show, the leasing of cabs has created financial benefits to owners at the expense of driver pay. Drivers work longer hours and experience a greater share of the downside financial risk with leasing than with the old commission system. Coupled with the medallion system, leasing has contributed to poor driver wages, taxi service problems, and high medallion prices.

While the medallion system alone is not responsible for taxi service problems, the argument can still be made that it is not helpful in providing an incentive for improving service. But serious attempt to improve taxi service in New York must address leasing rather than simply focusing on the deficiencies of the medallion system.


1 The 11 hour figure is based on driver surveys and includes the total work shift. Trip sheet studies have found that the elapsed time from the beginning of the first passenger trip to the end of the last one averaged 10.1 hours in November 1990. Subtracting breaks, drivers worked an average of 9.2 hours a day in November 1990. See Bruce Schaller, "Taxicab Fact Book, 3rd Edition," Taxi and Limousine Commission, May 1994, page 31.

2 William Mersey, "Wanted: a New Deal for Cabbies," New York Times, June 19, 1994.

3 Edward G. Rogoff, "Don't Raise the Taxi Fares," New York Times, October 30, 1995.

4 Edward G. Rogoff, "Taken for a Ride by the Taxi Fare Hike," New York Times, March 28, 1987.

5 New York Times (editorial), "Consider the Cabbies," September 24, 1995.

6 Ibid.

7 New York Times (editorial), "Taxi Reform, Again," March 31, 1986.

8 New York Times (editorial), "Cab Service, Still Shabby," May 27, 1990

9 New York Times (editorial), "The Taxi Industry Wins Again," December 10, 1989.

10 Elizabeth Roistacher, "The New York City Taxi Industry: What Price Medallions?" City Almanac, Summer 1988, pages 7 and 13.

11 Edward G. Rogoff, "Regulation of the New York City Taxicab Industry," City Almanac, August 1980, page 4.

12 Article III, section 11(a) of the Haas Act stated that the Hack Bureau may issue additional licenses after making a determination of public convenience, welfare and necessity.

13 For example, Rogoff states flatly that, "The question of how to increase their number [of cabs] if needed in the future . . . was not considered." City Almanac, page 4.

14 There was also a small increase of 10 cents per trip effective in July 1984, adopted to cover the cost of new electronic taximeters.

15 Data are based on a survey conducted by the Port Authority of New York and New Jersey and found in Bruce Schaller, Hailing From New York, Taxi and Limousine Commission, November 1993, page 10. Note that visitors to New York, who tend to be less familiar with the FHV industry, predominately take taxicabs from Manhattan to the airports.

16 Bruce Schaller, "For-Hire Vehicle Fact Book," Taxi and Limousine Commission, February 1993, page 7.

17 Roger F. Teal and Mary Berglund, "The Impacts of Taxicab Deregulation in the USA," Journal of Transport Economics and Policy, Vol. XXI, No. 1, January 1987, page 40.

18 Price Waterhouse (1993) "Analysis of Taxicab Deregulation and Re-regulation."

19 Revenues increased by 14 percent, as shown in Table 3. Mileage increased by 15 percent, from 225.3 miles per day in 1980-81, when most fleet drivers worked on a commission basis, to 259 miles per day in 1990. See Gorman Gilbert, "Operating Costs for Medallion Taxicabs in New York City," prepared in October 1981 and published in Mayor's Committee on Taxi Regulatory Issues--Consultant and Staff Studies, page 14; and Bruce Schaller, "The Taxi Industry, 1991," Taxi and Limousine Commission, October 29, 1991, page 13.

20 Steve Fulcinelli, "Leasing in the Taxi Industry," Taxi and Limousine Commission, April 1987, page 2.

21 Taxi and Limousine Commission, "Should the Taxi Fare Go Up?" March 31, 1994, page 11.

22 Taxi odometer readings show that average minifleet mileage increased by 15 percent from 1990 to 1994. Earlier mileage data are not available.

23 The rule mandates that all individually-owned medallions sold after January 1990 be henceforth driven by the medallion owner (who can also lease for a second shift). Between January 1990 and mid 1994, the licenses for 1,200 individual cabs were sold. These cabs must now be driven by the taxi owner.

24 "Taxicab Fact Book," page 14.

Copyright 1996 Eno Transportation Foundation, Inc.
Published in TRANSPORTATION QUARTERLY, Vol. 50, No. 1, Winter 1996.

The first and third papers in this series:

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