Taxi! Better Call Louder if You are in Mumbai

Taxi! Better Call Louder if You are in Mumbai

You get write a book about the taxi industry and the labour market for taxi drivers. In fact, I think academics have written theses and papers about it. It is a weird little market, one tightly controlled by unions and supply constraints, with sometimes ridiculous consequences. Most recently, those consequences have been evident in Mumbai, India.

taxiMumbai, of course, is one of the globe’s hot spots these days, the site of thousands of business deals daily as India continues its blockbuster growth. People fly into the airport and buzz around the city – except that in both cases there is a lag as they wait for taxis. According to this article from the Times of India, at present there is a severe shortage of taxi drivers in the city. From about 45,000 drivers a decade ago, there are now reportedly only 35,000 – a statistic that makes little sense when compared to the growth in the city’s economic activity over the decade.

How do you have a shortage of drivers in a country with an unemployment rate of close to 9 percent? Mumbai’s taxi union says it is partly about retirements. To drive a taxi you need a permit, and when you retire you can transfer it, if you have a relative who wants it. In industrializing India, apparently many of the children and grandchildren of retirees figure they have better prospects that being a cab driver. That’s fair enough, but not really the whole explanation.

The real issue, from what can tell, is that in order to apply for a cab permit in Mumbai, you need to have been a city resident for fifteen years. Think about that one for a minute. When you get into a cab in New York, your driver may only have been in the country for about six minutes. In Mumbai, if he has lived elsewhere in India over the previous fifteen years he is not eligible to drive. That means migrants from other parts of the country, the group that typically picks up city jobs during industrialization, cannot think of becoming drivers.

The Mumbai taxi driver case is unique, but parallels exist in many unionized trades and professions. It is not unusual to create ways to keep out new entrants and in the process keep earnings in check. Those barriers are something we need to examine closely in North America as a wave of retiring baby boomers moves us closer to ‘shortages’ of labor in many trades.

Mumbai may not be ready to welcome residents from outside the city as drivers, but they are apparently taking another radical step: they are considering allowing women to drive. On October 10th, the Mumbai State transportation board will hold a lottery for 7,800 new permits – and they have opened the doors for women to apply. According to this report, so far 221 have done so.

Women or men it does not matter who does the driving. What does matter, however is that economies that wish to be open for business need to move traffic as quickly as possible and with as few obstacles as possible. That’s true for Mumbai, but there are lessons for other cities as well.

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