An Economic Ecosystem Has Sprouted From New York City’s Recycling Initiative

There is a gold rush happening in New York with over 100 million dollars on the table.

As originally reported by Andy Newman in The New York Times, an entire economic ecosystem has emerged on the streets of New York City. However, it’s not actual gold people are chasing. Rather, it is five-cent deposit recyclables.

In all, there have been an estimated 4,000 new jobs created in response to these five-cent opportunities.

In short, eligible bottles and cans cost an additional five cents that may be redeemed if the container is returned to the store for recycling. While one person may only accumulate a few containers a week, an apartment building with 15 units might dispose upwards of 100 containers. This process snowballs a lone five-cent container into a ten-dollar bag of containers.

While a penny on the sidewalk might be left untouched, few would pass up a ten-dollar bill waiting on the curb.

Transaction Costs

However, it’s not that simple. A bag of containers might not be heavy, but it is certainly cumbersome. One would have great difficulty taking more than a few to the store. Furthermore, stores have the option to limit the number of accepted containers to 240 per person, or the equivalent of $12. One could avoid this by going to a dedicated redemption center, but even then, real estate prices have moved these away from city centers.

While picking up a 10-dollar bill takes only a moment, the containers lay unclaimed because few can justify the effort, or transaction costs, required to lug them around to eventually exchange them for a 10-dollar bill.

Specialization

In response, redemption companies now act as middlemen where box truck drivers pick up bags from the collectors, pay them the face value of five cents per container, and then deliver the bags to the redemption centers for a 3.5 cent, per container, handling fee on top of the five-cent redemption. Conrad Cutler, the owner of Galvanize Group, estimated a weekly purchase of 500,000 containers from Manhattan, alone.

At five-cents each, that is a six-million-dollar business. And if you think that is a lot, New York State Comptroller Thomas DiNapoli reported over 100 million dollars in unclaimed deposits each year (which is divided between the state and distributors in an 80/20 split).

In all, there have been an estimated 4,000 new jobs created in response to these five-cent opportunities.

However, Newman notes the enterprise does not stop here. There are canners who sell to bigger canners that then sell to trucks. There are bidding systems in which one might pay three cents for a five-cent can. Then there are those who make deals with businesses (i.e. offices, bars, and restaurants) to have exclusive access to their containers. Some redemption companies will pay premiums for sorted bags (i.e. a bag full of Red Bull cans), and others even offer year-end bonuses.

In all, there have been an estimated 4,000 new jobs created in response to these five-cent opportunities.

Extended Consequences

But the story does not end there. The art of economics is in analyzing extended consequences, not merely looking at immediate effects.

Yes, jobs were created, but at what cost? A distortionary price was exerted on the population, the government created a quasi-tax that they now lobby to expand, individuals opted for collecting containers over other jobs that might offer benefits, and an entire industry now hinges on a government-mandated price.

Only time will tell if this miniature gold rush will prove to have been a sound investment for legislators and collectors alike.

As if this weren’t enough, collectors must tip-toe to comply with the law since it is both illegal to collect from the curb, where trash becomes city property, and from buildings and homes, where trash remains private property. While the local government has turned a blind eye for now, citizens in a city famous for its stop and frisk program should not be blamed for taking a cautious approach to this endeavor.

It is a marvel, to say the least. But only time will tell if this miniature gold rush will prove to have been a sound investment for legislators and collectors alike.