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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.

5 Comments Post a comment
  1. Charles #

    “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” – I would say to Elizabeth that most servers feel it is an entitlement and not a reflection of their service. I say it is both a service reflection and payment for services rendered and thus comes the debate of how much to give. Give first a tip for the services rendered (if rendered) and then tip based on service quality provided leaving everyone with at most a minimum tip. The tip based on service quality can be changed upward by the server by providing excellent service all the time and not just expecting based on services rendered. I find most people that complain about tips fail to recognize their own contribution towards better service. This goes without saying that there are some people who don’t tip or tip very poorly no matter the service but for the most part service is below average in this one mans opinion.

    Like

    July 3, 2013
  2. Gilbert W. Chapman #

    No doubt about it, tipping does encourage discrimination, and, to be candid, I like it that way.

    For decades, I have patronized pretty much the same half dozen restaurants, and have found the key to excellent service is composed of five factors ~

    (1) Frequent your favorite restaurant (s) often . . . At least 2 or 3 times per month,

    (2) Make certain that the owner/general manager knows who you are,

    (3) Try to procure the services of the same server every time,

    (4) Don’t whine if there is something minor wrong with the meal, i.e. the steak is medium, rather than medium rare.

    (5) Tip 20% . . . At least ! ! ! If the check for a party of four comes to $100, leave a tip of $25 if everything went extremely well. Can’t afford the extra $5 . . . You should be dining in a less expensive restaurant.

    I have gone to breakfast with 3 other men for years. We rotate who pays, and who leaves the tip. The check is usually in the $30 to $35 range, and we have always left a $10 tip, even when only 3 or 2 of us can make it . . . Generous by any standard, right? We always have one of the same two waitresses (who rotate) . . . And let me tell you, we get always receive great service.

    Many years ago my wife asked me why we seemed to always get better service than when she was out with 3 or 4 other women. (What you are about to read is not intended to be sexist in any way . . . But . . . It’s true.)

    Men tip better. Whether it’s because their daughters were waitresses when they were in college or whatever, most every waitress I’ve asked has told me that a when the check comes for a party of four grey haired women, one will always pull out her hand calculator to make certain the 15% is exact to the penny. (Hey . . . It was middle aged waitresses who told me that; I didn’t dream it up.)

    And, I might add, that my daughter, who was a waitress while in college, commented that smokers are far more generous with tips, and don’t complain if their food is ‘delayed’ in the kitchen. They just light up another cigarette, and continue to enjoy their conversation.

    By the way . . . I will not patronize any restaurant if I find out tips are ‘pooled’. My tip to a waitress is for her . . . For the excellent service she gave us, not for splitting with some other poor waitress she happens to work with ! ! !

    Finally ~ If I get a waitress with an ‘attitude problem’, I leave nothing, yes $0 for a tip.

    Note ~ Men waiters? In our area of Pennsylvania it is rare to see a waiter. Now . . . Bartenders . . . That’s quite another story.

    Like

    July 3, 2013
  3. norene norman #

    The above is all true, I have been in the business many years and my mom was also. All statements are very true, not one word was not. Give me a party of 15 men vs 6 women any day and most waitstaff, male or female, agree.

    Like

    July 3, 2013
  4. Tip are a voluntary fee for service. Getting rid of that would reduce the incentive for good service. It’s a basic lesson in economics that price is information, feedback, in this case. That’s not to say that all tips are equal for all levels of service, there are many reasons for their to be outliers. It’s silly to want to interfere with this merit system just because some small number discriminate or take advantage.

    Like

    July 7, 2013
  5. Katy Delay #

    Now they want to ban tipping. Whatever happened to freedom of choice, freedom of expression and the individual’s right to dispose of his/her property as he/she sees fit?

    Like

    July 10, 2013

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