[Open Forum] There Is a Way to Solve the “Taxi Shortage”

A so-called “taxi crisis,” in which it has become difficult to catch a taxi in Seoul’s busy downtown areas, is unfolding. The taxi shortage began after the social distancing measures that had continued for the past two years were lifted on April 18. According to data from the Seoul Metropolitan Government, on the first day the distancing rules were lifted, the number of taxi rides during late-night hours (24:00–02:00) totaled 69,362. This was a 96.2% increase compared to the averages for the same days of the week during the second and third weeks of February, when distancing measures were still in place, which stood at 35,346. There are several reasons why it has become harder to get a taxi late at night: a surge in taxi demand following the lifting of social distancing, the steady decline in the number of taxi drivers, and taxi supply that cannot keep up with soaring demand.

Unless effective measures are introduced, the taxi shortage in nightlife districts during the evening hours—when many people are trying to get a ride—will continue, leaving people stranded and anxiously searching for empty cabs.

The taxi industry’s hiring difficulties had already begun even before social distancing. Around taxi license test sites, transportation company staff gathered in hopes of recruiting drivers. On top of that, after the outbreak of COVID-19, people moved into contact-free industries that saw strong growth, further worsening the labor shortage in the taxi sector.

One reason the taxi industry’s labor shortage has not been resolved lies in the inflexible and unrealistic fare system. As a result, the number of taxi drivers has steadily declined.

To resolve the taxi crisis, the rigid taxi fare system must be improved. The first step that could be tried is to allow ordinary taxi fares to set their own nighttime surcharge rates. If nighttime surcharges are liberalized during late-night hours or other periods of high taxi demand, there will likely be at least a temporary increase in the number of corporate taxi drivers working those hours. That would help absorb the temporarily elevated demand.

But this would only be a stopgap measure. For a more effective solution, a more flexible fare system should be introduced within a certain range depending on time and vehicle type. In other words, the authority to set fares should be shifted from local governments to individual taxis and consumers. If that happens, various types of taxi services that could not emerge under the current fare system would begin to appear and be supplied.

A representative example is “Tada.” Although “Tada,” which once had 2 million subscribers in the Seoul metropolitan area, has now disappeared, it left behind useful implications. “Tada” basically charged higher fares than ordinary taxis and also applied flexible pricing, adding surcharges during commuting hours and late-night periods. Even so, consumers were satisfied with Tada’s pricing and service.

If such a flexible fare system is introduced, a variety of services could emerge even within the current taxi industry, and consumers’ diverse needs could be better met.

From a long-term perspective, institutional reform is also needed to make the supply of taxi services more flexible. First, one option worth considering is extending the hours during which taxi operators are permitted to work so they can provide service during peak periods when demand is concentrated. At the same time, if Uber-style operations permitted in other countries were also allowed, supply could increase more smoothly in response to fluctuations in demand.

In the taxi service sector as well, expanding the role of pricing and supply flexibility can increase consumer welfare. Solving the taxi shortage is possible when market functions are revitalized.

Dongjun Shin, Intern Researcher, Center for Free Enterprise (CFE)

---

Original title: [자유발언대] ‘택시대란’ 해결 방법은 있다

Author: Dong-jun Shin

Date: 2022-07-01

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=8&idx=24823