What If We Banned Tipping?
Tipping in America is an experience fraught with uncertainty. How much should you toss in the jar at the coffee shop? Are you supposed to tip on takeout? Debates break out at the end of otherwise peaceful meals and spill over onto online forums: Is 15 percent the standard these days, or 20? What if the service is unfriendly or slow? Do you calculate the tip before tax, or after?
A vocal anti-tipping contingent argues that we should just bag the confusing ordeal and ban tipping altogether. Freakonomics’ Stephen Dubner argues that tipping encourages discrimination by race, gender, weight, and even hair color (blondes come out ahead). Elizabeth Gunnison Dunn of Esquire says the practice is unfair, since many customers don’t realize that tips aren’t just a show of appreciation. Servers often earn just $2 or $3 an hour, which means they rely on tips to make a living wage.
Michael Lynn, a professor of consumer behavior at Cornell University, says that tipping also creates unnecessary stress for clientele :
I think it’s quite possible that tipping norms undermine overall satisfaction or happiness. The social pressures people feel to give up money they would rather keep, for them tipping is a net loss. And it’s very possible that that net loss exceed the benefits.
Framed in this light, tipping seems to have a lot of disadvantages. So what would happen if we got rid of tips and paid servers more? I asked a few of AIER‘s economists to imagine the fallout.
Researcher Anca Cojoc says a decline in the quality of customer service would be one likely effect. “If you replace tips with fixed salaries, servers’ incentives to provide great service change,” she says. “They already know they’ll get a certain amount of money, and so they’ll put in as little effort as possible.”
As proof of her theory, she points to her experiences dining across the Atlantic. “In Europe, the culture is no tip unless you feel inclined to give one,” she says. “Customer satisfaction there is lower.”
Zinnia Mukherjee agrees that servers respond to incentives. But she adds that restaurants don’t necessarily have to rely on tips to motivate their waitstaff. “If waiters provide poor service, restaurants might lose customers, and owners don’t want that,” she says. She suggests that owners could try using the lay system–a method commonly used in fisheries.
“The boat owner pays his crew in proportion to the profit earned from fishing, ” Mukherjee says. “So the crew has the incentive to fish harder (and not shirk their responsibilities) because more profit for the boat owner means more earnings for the crew. Similarly, if the restaurant owners allow the waiters to share a part of the restaurant profits, they will still have the incentive to serve well because they don’t want to lose customers themselves.”
Barring that kind of system, Mukherjee notes that eliminating tips would make some people in the food service industry worse off. “A number of servers actually depend a lot on high tips,” she says. One of AIER’s own economists was once employed by an expensive restaurant where tips were so high that waiters had to pay $50 a night just to work there. On the other hand, servers who work at cheaper restaurants would benefit from a tip-free society, since they don’t make much in tips to begin with.
It’s also likely that menu prices would rise if tipping were banned. Owners would have to charge customers more in order to pay waiters higher wages. Since some diners would be turned off by the prospect of paying a few dollars more for the same old dishes, Mukherjee says owners would be try to balance out the costs by cutting back on servers’ hours, too.
“Restaurant owners would aim to continue maximizing their profit earnings, so they would try to adjust their decisions to meet that target, ” she says.
Would you want to live in a tip-free America? Why or why not? Let us know in the comments.