Labour Market

Taxis and ethnic pay gaps

Twice in recent weeks Parliament Square has been blockaded by taxi drivers. The visible contrast between these demonstrations tells us something about ethnic pay differences.

The first blockade was by black cab drivers, those allowed to pick up fares in the street. Their particular argument this time was with London mayor Sadiq Kahn, who wants to ban cabs from some streets in central London as part of his bid to clean up the capital’s air – although these drivers have a range of other issues bubbling under, about Uber and so on.

The second demonstration was by the United Private Hire Drivers, part of the Independent Workers Union of Great Britain. These are mini-cab drivers, who can only pick up pre-arranged fares (whether via Uber, Lyft and other apps or through old-fashioned cab agents). They were also protesting against Khan, but this time on another aspect of his plans. The Mayor aims to remove the congestion charge exemption from Private Hire Vehicles, though still retaining it for black cabs. Minicab drivers believe, probably correctly, that this puts them at a competitive disadvantage and will reduce their net earnings.

My point here is not over these issues directly, but rather the visible contrast between the two sorts of drivers. The black cab drivers were almost all white, and the minicab drivers almost all BAME. This impression is borne out by official Transport for London figures, which suggest that around 90% of black cab drivers, but well under 10% of PHV drivers, are White British.

This taxi apartheid is a function of longstanding government regulation. Black cab drivers face a wide range of restrictions on their vehicle specification, on the services they offer and on prices, but the fundamental difference is that they must possess ‘the Knowledge’. That is, they have to know by heart how to get around London. Absorbing this arcane (and archaic) Knowledge, tested by demanding oral and written examinations, takes three to four years on average and is costly to acquire. This keeps out applicants who cannot afford the time and expense and guarantees a high level of commitment. It also perpetuates significant differences in earnings and working conditions between the two types of driver.

Once an individual has acquired the qualification, a cabbie will inevitably resist changes to the rules (first set down in 1865) to recognise such 21st century innovations as GPS and mobile phones. While there is no formal proscription of BAME applicants, this costly system discriminates in practice against them.

This is an example of the way in which occupational regulation, often undertaken for apparently sensible reasons, can become outmoded and a barrier to opportunity. There are many other examples.

This example also shows why monitoring of firms’ ethnic pay gaps, which the government seems minded to introduce may do little to reduce the ethnic pay gaps in the labour market as a whole. In principle there might be no pay gaps at all within firms, but if different ethnicities worked in different firms, different sectors or – as in the taxi case – under different occupational rules, big pay gaps could remain across the economy.  

Moreover, making ethnic differences visible within firms may be counterproductive if firms react by trying to manipulate indicators. For example if young recruits are differentially drawn from BAME groups, this will exacerbate pay gaps as young, less experienced, workers are typically (and rightly)paid less in virtually any context. So firms can reduce pay gaps by recruiting older workers instead. Young BAME workers lose out.

Ethnic disadvantage is a complicated phenomenon, and not just something which is caused by malign capitalists. It is a consequence of many factors. One is inappropriate regulation.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

Leave a Reply

Your email address will not be published. Required fields are marked *