For the longest time, market forces have been given the freedom to decide for themselves how businesses should operate. It is believed that consumers would ultimately benefit from this as long as competition is fair, and not restricted.
The government has avoided giving in to popular demand of setting a minimum wage system – arguing that a market-based approach is better in the long run for the country. But it did not consider the possibility that companies themselves might actually set their own “minimum wage” anyway, thus allowing them to control the supply of labour.
Interestingly, Uber’s new scheme to offer minimum wage per hour to its drivers during peak period has posed a curious situation for us to look into.
How is Uber changing the dynamics of the taxi industry?
The biggest change that Uber has introduced to the market is allowing private car owners to provide booking-like pickup services much similar to what taxi companies offer.
This is powerful because it allows anyone to provide pickup services. In other words, this not only lowers the barrier of entry substantially, but also introduced more competition into the industry.
Usually when competition increases, earnings of the existing players (i.e. the taxi drivers) will drop. However, it appears that apps such as Uber are helping to make the market more efficient as well.
While taxi companies may claim that the interests of their drivers are not protected in these apps, one can’t help but wonder that if the taxi companies were really doing such a great job in the first place, why was there such a rush for drivers to switch over to Uber or other third-party apps so quickly?
Minimum Wage For Uber Drivers
The biggest shakeup that Uber is rolling out is guaranteeing their drivers between $27 – $32 per hour for peak period work. If a driver were to pick up passengers using Uber between 6am to 10am ($32 per hour) and 5pm to 11pm ($27 per hour) during weekdays, he will be able to make a minimum of $290 at least – subjected to meeting the requirements set by Uber.
It isn’t so much the actual amount paid that got us interested but rather the underlying concept behind it. Because Uber business model practically allows anyone to join, the company can technically control the supply of drivers providing taxi-like services in Singapore via controlling the minimum wage it is willing to pay.
If Uber were to further increase their minimum wage, more private drivers are likely to join. Taxi drivers will face further pressure via the additional competition brought in by Uber and, sooner or later, they will have little choice but to join Uber as well and earn the minimum wage promised.
Over time, there might be less incentive for taxi drivers to pick up passengers from the street during peak period when they know that they are able to earn so more via Uber.
The real reason why the taxi industry is so easily affected
Start-ups have always been particularly disruptive for industries that have failed to keep up with the growth and usage of technology. Google replaced Yellow Pages. Agoda and Tripadvisor are replacing tour agencies. And Apple and Amazon have already replaced HMV and Borders.
At this rate, it is only a matter of time before Uber and other third-party booking apps replace taxi companies. These apps have been so quickly adopted by Singaporeans not because they were that great, but simply because the taxi industry was pretty broken to start with. These apps simply helped fixed things that were a constant source of frustration.
For example, hailing down a taxi during peak period in Singapore is practically impossible – especially in certain locations like the CBD. Neither could you make a call to book a cab. Hence, consumers start turning to their mobile apps to book taxis. Singaporeans didn’t need to be convinced to change their behavior. It was necessary.
Likewise, taxi drivers soon realized that it was not worth waiting for phone call bookings when there were so many possible bookings they could take up using these booking apps. In time, with companies like Uber having a minimum wage system put in place, there will be even more incentives for taxi drivers to use these apps.
Will the government really allow market forces now?
Third-party booking apps like Uber are fantastic examples of how market forces can improve the quality of services in any one industry. However, as with all successful startups, there will be incumbents that will lose their relevance in time to come.
Taxi companies in Singapore will need to quickly find ways to continue staying relevant to both their drivers and passengers if they are to survive and compete in Singapore.
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