Should we ban part-time taxi drivers?

Lyft and Uber have (re-)arrived in Austin, offering free rides for a couple of weeks, despite the City of Austin declaring they are operating against the law.  You can’t beat free, so I’ve been taking a lot of these rides.  All of my drivers have been part-timers, looking to supplement income.  This is in stark contrast to taxicab drivers, who are pretty much all working more-than-full-time hours.

The economic reasons why taxi drivers are full time make a lot of sense. Cabs are dedicated-purpose vehicles, going for the most part unused when they aren’t working.  Taxi licenses are an extremely scarce resource due to city regulations.   The taxi industry will find a structure to make sure these two expensive resources are working as often as possible.  Taxi licenses are issued to individuals, though; so this means that any structure that ensures that we have a lot of usage of our limited taxi licenses also ensures that our taxi drivers are working overtime.  The form this takes in Austin is high costs for either purchasing or leasing a taxi and high “terminal fees” for getting the right to use the taxi companies’ dispatch system.  Every month, each taxi driver starts deep in the hole and has to work a lot of hours just to break even, to pay for the fixed costs of their cab and their terminal fee.

So how do Uber and Lyft turn this dynamic around and allow for part-time drivers?  Uber and Lyft (whatever the legalities of their operations) are not limiting themselves to a city-capped pool of taxi licenses, nor are they limiting themselves to cars that are used exclusively as taxis. If a driver decides not to work Uber for an afternoon, a week, or a month, this doesn’t take the expensive fixed cost of a taxi out of their network, nor does it take the scarce resource of a taxi license out of their network.  Because of this, Uber and Lyft can do away with the terminal fee and instead just take a percentage of each ride as a dispatch fee.  Felix Salmon does the math and finds that, if the numbers are to be trusted, a full-time driver with Uber makes pretty good money compared to most taxi drivers, but a part-time driver does very well indeed.

There are many, many issues at play with Uber and Lyft, but from a very zoomed-out perspective, current city regulations make it uneconomical to have part-time drivers, and Uber and Lyft have come up with a model to change that.  Now, why we do we care?  Because taxis have very variable demand.  At peak hours, the number of licenses Austin hands out aren’t nearly enough to keep up with the demand.  But because drivers are starting off so far in the hole, they can’t just work peak hours; they have to work additional hours even if they’re very poorly paid for those hours, because they have to pay off the high fixed costs. So our current structure works for neither drivers nor riders: drivers have to scramble for every last ride in off-peak, but there still aren’t enough of them to give rides on-peak.  A structure (whether Uber/Lyft or something else) that allows drivers to come online during peak but doesn’t force them to work tons of off-peak hours could be beneficial to drivers and riders alike.  This presents a test of sort for any change in regulations.  Will it allow the economics to work for part-time drivers?  If not, then it really hasn’t accomplished much.

Should we ban part-time taxi drivers?

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