To catch up with Uber, Chicago taxi group proposes … higher fares?

The taxi industry complains endlessly that ridesharing services such as UberX and Lyft are hurting its business. Now an AFL-CIO-affiliated group of Chicago cab drivers is seeking to improve its members’ fortunes by pushing the city to mandate higher taxi fares. But hiking prices doesn’t seem like a good way to save an industry that...

The taxi industry complains endlessly that ridesharing services such as UberX and Lyft are hurting its business.

Now an AFL-CIO-affiliated group of Chicago cab drivers is seeking to improve its members’ fortunes by pushing the city to mandate higher taxi fares.

But hiking prices doesn’t seem like a good way to save an industry that is already losing out to lower-priced competitors.

One reason taxis are losing so much business to ridesharing services is because an UberX ride is much cheaper than a taxi ride. And many consumers report that they find rideshare vehicles to be cleaner, and their drivers friendlier. So higher taxi fares are likely to make even more people choose ridesharing services over taxis, making taxi drivers even worse off.

Counterintuitively, full-time rideshare drivers almost certainly earn much more than taxi drivers despite their lower fares. A recent study showed that, after paying their expenses, Chicago cab drivers make an average of just $5.40 per hour.

Cab drivers make so little because of the city’s taxi medallion system. Anyone who operates a taxi in Chicago must have a city-issued “medallion” – and they aren’t cheap. At its most recent medallion auction, the city set the minimum bid for one medallion at $360,000.

Most cab drivers can’t afford their own medallion, so instead they lease one from a cab company for hundreds of dollars per week. Some drivers obtain financing to buy their own medallion and see almost all of their revenues eaten up by the cost of payments on it.

The solution to cab drivers’ problems therefore isn’t to have the city mandate higher fares. It’s to scrap the medallion system.

That would also be better for consumers. As ridesharing companies have shown – along with many studies by the Federal Trade Commission and others – greater freedom in transportation means lower prices and better quality.

In addition, taxis should be free to set their own fares rather than have them dictated by the city. If cabs can raise fares when demand is high, more drivers will be drawn into the market, and taxis will be more available to consumers. Ridesharing drivers and customers have benefited from flexible pricing in this way, and taxi drivers and passengers should not be left out.

Unless the city learns and applies these lessons, cab drivers’ fortunes will not improve, and the taxi industry will find itself descending further into irrelevance.

UPDATE: The study cited above found that the average Chicago cab driver makes $5.40 an hour after expenses, but that might not be correct. The true figure may actually be lower. A study by Dr. Robert Bruno at the University of Illinois at Chicago School of Labor and Employment Relations found that the average Chicago cab driver makes just $4.38 per hour after expenses.