SELF-EMPLOYED DRIVERS IS AN OPTIMAL SOLUTION FOR THE TAXI MARKET
Experts of the Gaidar Institute have examined the economic impacts of the introduction of a mandatory drivers’ employment in the taxi industry either as full-time employees of a carrier, or taxi aggregator.
This initiative was considered by legislators in connection with the discussion of a new draft law regulating the activities of taxi transportation in Russia. The researchers concluded that such an innovation can result in strong negative consequences for the market, while it is most expedient amid regulating and reforming the taxi transportation industry in Russia, to focus on the scenario suggesting that most taxi drivers would work as self-employed, according to the tax regime that has become available throughout Russia from July 1, 2020
Currently, there are practically no labor relations at the taxi market, however, relations with drivers are regulated on a contractual basis within the frame of the Civil Code. The study examined three possible scenarios for interaction between market participants: the introduction of universal compulsory labor relations with taxi companies or taxi services (aggregators), as well as basic scheme of cooperation with self-employed drivers working in the taxi segment.
Experts have examined economic models of over 40 taxi companies from 11 regions of Russia. When calculating possible consequences, each scenario accounted tax impacts, number of employees, demand, pricing, risks of monopolization, impact on development of this segment of small and medium-sized business, impacts on “whitewash” of the industry, stabilizing function of the industry under economic crises ( the opportunity to earn additionally), drivers’ payroll rate, etc.
The research showed that with the introduction of compulsory employment of taxi drivers, employers' costs would grow by about 30%, causing an increase in travel prices by about 22-23% and a decrease in demand by almost 25%. The required number of drivers for Russia as a whole will also decrease by about a quarter - from 599.800 to 451.800 for such value of service.
The expected positive effects of the introduction of mandatory labor relations should include a higher level of protection of the drivers’ labor rights as well as social guarantees, however, they will not be implemented to the expected extent with strong incentives emerging to work partly unofficially.
The cost effectiveness of large and medium-sized taxi companies after the introduction of mandatory labor relations becomes negative up to 70%. Therefore, large (more than 150 cars) and medium (50–150 cars) taxi companies will be forced to increase the share of “off-the-book” salaries or stop their activities; while small taxi companies (up to 50 cars) will be able to remain profitable mainly under the “off-the-book” scheme of paying wages to taxi drivers. As a result, the amount of tax revenues in the industry may decrease by 40-60%.
If drivers are employed directly with aggregators, taxi companies will be forced to completely change their business model, which will result in average losses of 50% of profits. Tax revenues might reduce up to 40% under this scenario. Such a scheme of interaction also involves rather high risks of the industry monopolization, entails a slowdown in the development of the small and medium-sized business segment, and similar to the scenario "Labor relations with taxi companies", reduces the stabilizing function of the industry for the labor market during periods of economic crises, in other words, makes the possibility to earn additional money in the taxi market more challenging. This is especially relevant in the context of an expected slowdown of the economic development due to the pandemic of coronavirus infection.
In turn, with the widespread transition to work with self-employed drivers, the costs of taxi companies and the parameters of market equilibrium (volume and price) change insignificantly compared to the current situation, the level of profitability of taxi companies practically does not change and does not create additional incentives to go into the shade.
In addition, this scenario demonstrates low risks of monopolization of the taxi industry, promotes the development of the small and medium-sized business segment, and retains the industry's stabilizing role for the labor market during periods of economic crises.
In the short term, the transition to the “Self-employed” scenario may result in a slight reduction in tax revenues in the industry (by an order of magnitude minus 6.7%), but as the special tax regime spreads, there will be a significant “whitewashing” of the taxi industry, contributing to its growth in the medium and long term horizon.
Special tax regime (self-employment) is already quite in demand in the industry: according to the Federal Tax Service of the Russian Federation, about 16.5% of those registered as self-employed are taxi drivers. From July 1, 2020, the experimental tax regime became available in all regions of Russia.
Assessment of the taxi market development prospects in case of market introduction of widespread labor relations.
Currently, there are practically no labor relations at the taxi market, however, relations with drivers are regulated on a contractual basis within the frame of the Civil Code. The study examined three possible scenarios for interaction between market participants: the introduction of universal compulsory labor relations with taxi companies or taxi services (aggregators), as well as basic scheme of cooperation with self-employed drivers working in the taxi segment.
Experts have examined economic models of over 40 taxi companies from 11 regions of Russia. When calculating possible consequences, each scenario accounted tax impacts, number of employees, demand, pricing, risks of monopolization, impact on development of this segment of small and medium-sized business, impacts on “whitewash” of the industry, stabilizing function of the industry under economic crises ( the opportunity to earn additionally), drivers’ payroll rate, etc.
The research showed that with the introduction of compulsory employment of taxi drivers, employers' costs would grow by about 30%, causing an increase in travel prices by about 22-23% and a decrease in demand by almost 25%. The required number of drivers for Russia as a whole will also decrease by about a quarter - from 599.800 to 451.800 for such value of service.
The expected positive effects of the introduction of mandatory labor relations should include a higher level of protection of the drivers’ labor rights as well as social guarantees, however, they will not be implemented to the expected extent with strong incentives emerging to work partly unofficially.The cost effectiveness of large and medium-sized taxi companies after the introduction of mandatory labor relations becomes negative up to 70%. Therefore, large (more than 150 cars) and medium (50–150 cars) taxi companies will be forced to increase the share of “off-the-book” salaries or stop their activities; while small taxi companies (up to 50 cars) will be able to remain profitable mainly under the “off-the-book” scheme of paying wages to taxi drivers. As a result, the amount of tax revenues in the industry may decrease by 40-60%.
If drivers are employed directly with aggregators, taxi companies will be forced to completely change their business model, which will result in average losses of 50% of profits. Tax revenues might reduce up to 40% under this scenario. Such a scheme of interaction also involves rather high risks of the industry monopolization, entails a slowdown in the development of the small and medium-sized business segment, and similar to the scenario "Labor relations with taxi companies", reduces the stabilizing function of the industry for the labor market during periods of economic crises, in other words, makes the possibility to earn additional money in the taxi market more challenging. This is especially relevant in the context of an expected slowdown of the economic development due to the pandemic of coronavirus infection.
In turn, with the widespread transition to work with self-employed drivers, the costs of taxi companies and the parameters of market equilibrium (volume and price) change insignificantly compared to the current situation, the level of profitability of taxi companies practically does not change and does not create additional incentives to go into the shade.
In addition, this scenario demonstrates low risks of monopolization of the taxi industry, promotes the development of the small and medium-sized business segment, and retains the industry's stabilizing role for the labor market during periods of economic crises.
In the short term, the transition to the “Self-employed” scenario may result in a slight reduction in tax revenues in the industry (by an order of magnitude minus 6.7%), but as the special tax regime spreads, there will be a significant “whitewashing” of the taxi industry, contributing to its growth in the medium and long term horizon.
Special tax regime (self-employment) is already quite in demand in the industry: according to the Federal Tax Service of the Russian Federation, about 16.5% of those registered as self-employed are taxi drivers. From July 1, 2020, the experimental tax regime became available in all regions of Russia.
Assessment of the taxi market development prospects in case of market introduction of widespread labor relations.