Bastiat's Bastions

Very interesting article at NOLA.com on taxicab medallions. To legally operate a taxicab in New Orleans, you must have a medallion. The city plans on reducing the number of medallions from roughly 1600 to 1100, thereby dispatching with approximately 500.

If you were around during Mayor Nagin's first term, the Taxicab bureau has a checkered past – there was serious corruption. But back to the new news. The number of taxicab medallions has been fixed at 1600, since believe it or not, the 1960s. As you might imagine, because the number of taxicab operators is artificially constrained, the right to be a taxicab operator might be rather valuable. In the late 1990s, medallions were being sold for in the neighborhood of $50,000. Keep in mind this isn't the cab itself – it is the right to be able to operate a cab. Pre-Katrina, medallions were said to be worth around $25,000. These figures suggest that being a cab driver must be a rather lucrative venture, given that people are willing to pay $25,000 simply for the right to do so. If there were no legal restrictions on the number of medallions, surely new entrants would appear in the business.

It turns out that many people who held medallions pre-Katrina (approximately 500) have not renewed them. The rate between downtown and the airport has always been toasty. With fewer of such trips and other trips as a result of the reduction in tourism in the city, many cabbies have found other opportunites more lucrative.

City officials plan on recalling those medallions that are not renewed by the close of business today. This means these medallions will not be given to others, they will permanently (well, maybe) removed.

This idea would appear to be the brainchild of Sidney Bournes, head of the New Orleans Taxicab Bureau. Here's a quote from the article…

Reducing the number of taxis in the city fleet will have a positive impact on the industry, Bournes said.

Not only will cabbies make a better living, the value of a CPNC [medallion] should rise again, Bournes said.

Couldn't agree with him more. It seems Bournes clearly has the interest of taxicab operators in mind. Existing cab companies are no doubt United. They will fare quite well. Now on to another quote…

Consumers, too, may see the benefits of a reduction in the number of certificates, Bournes said. Successful cabbies are less apt to be "driving around in 30-year-old, raggedy taxis."

Hmmm. How is that limiting the number of cabbies, is going to help out consumers? Shouldn't I expect higher prices and longer wait times for a cab with restrictions on the number medallions? How does that make consumers better off?

I have to hand it Bournes, he's no hack. I think sneaking this through now is a stroke of genius. Folks have a lot on their mind right now other than cab drivers. As 500 people who could legally operate a cab are choosing not to now, it doesn't seem as though the business is lucrative today. As such, there won't be an immediate meaningful change in availability or service.

But in the longer term, as the city recovers, demand for taxicabs will increase.

It's unfortnate there isn't a market where taxicab medallions are actively bought and sold. This type of news would certainly have made for a banner day.

–CT

Credit where it's due – I snagged the article from thesportseconomist.

The topic is whether or not college athletes should be paid. The article, written by John Wilner at the Mercury News, reports a reasonable estimate of the amount of revenue that is "generated" by Cal's running back Marshawn Lynch.

Lynch is no average player – he is on a lot of pundits' short lists for the Heisman Trophy, an award given to the best college football player each year. The article points out that the scholarship Lynch receives as compensation for his services is worth in the neighborhood of $20,000, while Lynch brings in roughly $800,000 of revenue to the University. By the metric, Lynch is vastly underpaid.

Of course the source of this underpayment is the fact that the NCAA prohitibits colleges to pay college athletes – effectively capping their compensation at the value of the scholarship they receive. If Lynch were able to sell his services in a unrestricted market, there is no doubt he would earn much more money.

Do you expect athletes to be "paid" anytime soon? Three things to consider first.

1. The rhetoric on idealism, traditionalism, and amateurism. Is this just rhetoric? Or do people really like amateurism. Is college football even "amateur"?

2. Universities compete to field winning football programs. Univerities can improve their chances of winning by recruiting more talented players, more talented coaches, and by enhancing facilities, just to name a few. Since direct monetary compensation for athletes is prohibited, this will increase the intensity of competition on other margins. Fortunately for the folks who are coaches and athletic diretors, there is no cap on the compensation of coaches and athletic directors. In a world with pay for athletes, might coaches and administrators get a smaller fraction of the pie? Would these folks be in favor of paying players if it reduces their compensation? Who is on the front line of making the decisions about pay for athletes?

3. At big-time Division I programs, the football program turns a surplus (profit). Some of this surplus (which of course is larger because they do not have to pay players) is spread around to other athletic programs within the university that do not generate a surplus. For instance, women's soccer or men's golf – these programs are subsidized by the football program. If football players were paid, would this limit the funds available for these so called "non-revenue sports" (title IX considerations aside)? Will the women's soccer coach be in favor of paying footall players if it ultimately cuts in to the soccer budget?

–CT

You'd think in the three months I'd be able to come up with a more clever title…

Two interesting articles about the labor market in New Orleans with seemingly contradictory statements. One says the going wage for unskilled workers is more than $10/hour, the other says are plenty of folks who will work betwen $6/hour and $8/hour.

First, from NOLA.com, the plight of NOLA firefighters. It seems to me that firefighters have three basic complaints.

(1) They were not included in the group of city employees that received across the board raises. Notably, police officers were included.

(2) There are fewer firefighters than there were pre-Katrina and they are having difficulty attracting new firefighters.

(3) The salary being offerred to attract new firefighters is higher than the salary being earned by many firefighters that have been on the job for some time.

This situation where the salary of inexperienced workers exceeds the salaries of experienced workers is called "salary inversion" and can be a very sticky situation for firms. It happens at places, for instance, like Nicholls State University. As the article notes, fast food restaurants are offerring wages of $10/hour. If the city is to attract new firefighters, they will have to pay competitive wages. This means new hires would be earning more than experienced workers. It seems then, that solving item (2) causes item (3), while item (1) isn't possible with the budget.

Is salary inverstion equitable? What should the city do? The firefighters? Does your opinion change depending on whether or not you are the new hire?

One last thing about the fire fighters…I'm not sure about Parent's math, it would seems firefighters are not very healthy these days…

"Because of resignations and retirements, it now has 695 employees, including 651 actual firefighters, but about 100 are out on sick leave on a typical day, meaning "manpower is down between 30 and 60 members on a daily basis," Parent said.

On to the second article. The Soutern Poverty Law Center is suing Decatur Hotels on behalf of a group of immigrant hotel workers. Without getting into the details of this lawsuit (the complaint is on the SPLC's website), a central part of the story is that Decatur Hotels claimed they could not find any domestic workers to work in hotels. As such, DH sought and received approval from the US Department of Labor to bring in "guest workers".

To recruit guest workers, DH had to certify to the U.S. government that it could not find U.S. workers to fill the jobs. Indeed, in its request for labor certification, Decatur claims to "have offered work to hurricane evacuees" but "no one applied."

Decatur Hotels ultimately paid the immigrant workers wages of between $6/hour and $8/hour. The SPLC contends that Decatur didn't try very hard to find workers willing to do the work at those wages. The SPLC claims that there were many workers, already in New Orleans, willing to do the hotel work at these wages.

Now for the inconsistency. Given that fast food resaturants are paying $10/hour, would you expect that Decatur Hotels would have much luck in attracting domestic workers at between $6 and $8 an hour as the SPLC claims?

–CT

Update: All fire fighters (even the experienced workers) get their raise after all.