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The government has given the green light to a hike in taxi fares in Tokyo, although it allowed a lower rate of increase than the industry sought because of concern that national price trends could be inflated. The rise will take effect in December and be followed by similar increases nationwide. Aimed at increasing drivers’ income and improving their working conditions, the hike has exposed structural problems in the taxi industry.

Deregulation of the industry in 2002 abolished a system under which the government regulated supply and demand by requiring approval of the number of vehicles operated by taxi companies. As a result, the number of company-operated taxis in Japan increased by 14,500 (6.7 percent) in the four years to March 31, 2006. However, passenger volume in the period changed little amid slow economic growth, and the per-vehicle daily operating revenue of taxis declined 5.3 percent to ¥29,300.

Taxi operators increased their fleets after the deregulation, and were permitted to set their base fares at less than the standard ¥660 for a medium-size vehicle in Tokyo.

Indeed, although deregulation led to the debut of low-cost taxis with a base fare of ¥500, little price competition has resulted since most passengers catch cruising taxis and thus have difficulty choosing the low-cost ones.

Standard fares are based on the average cost of operating taxis plus “proper profits.” Under this formula, efficient companies that keep operating costs below average earn more profits. But most taxi operators need fare hikes to improve drivers’ pay, which accounts for 60 to 70 percent of operating costs. In fiscal 2006, taxi drivers averaged ¥3.29 million in annual pay, ¥2.26 million less than the average for all industrial workers. Their work hours totaled 192 more than the industrial average.

The transport ministry is urging the taxi industry to raise drivers’ pay with the fare hike and plans to announce the results of the industry’s efforts to improve working conditions. Structural reform of the industry should be expedited so as to raise standards of living for drivers while benefiting users.

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