Tipping is a toxic system that restaurateurs should abolish
It’s a system that harms restaurant staff, and, as The Economist writes, it’s a nasty cycle of low pay justifying tips and tips justifying low pay
For all the apparent good it does, tipping has long been a point of contention in the restaurant industry. From the practice’s racist history (Americans hired newly freed slaves to work for tips alone) to the very word’s roots (the word ‘tip,’ one theory suggests, is shorthand for “to insure promptness”), tipping forces both diners and restaurant staff into an unfair and awkward situation. For the diners, the dilemma mostly lies in the danger of offense—by just how easy it is to unknowingly offend servers through a small tip.
Which begs the question: What is considered the right sum to leave? And is it necessary to leave a tip if you’ve already paid for service charge? Waitstaff meanwhile face much higher stakes as far as the question of tipping is involved: In countries like the United States, servers are paid below minimum wage and are thus decidedly dependent on the “goodwill” of customers.
At surface level, the tipping system sounds exactly like a benevolent administration’s effort to reward exceptional service and encourage hospitality, but it’s actually a toxic system in that it offloads businesses from the burden of paying their workers fair wages. Not to mention the fact that it can encourage dangerous dynamics within restaurants, espousing jealousy among staff members, and sexism and racism between diners and restaurant staff.
TIPPING ENCOURAGES DISCRIMINATION
It’s been proven by several studies that both white and black consumers tip black servers less than white servers. A study from the Journal of Labor Research meanwhile found that while men and women earned the same in tips when service was found to be “exceptional,” service quality that was less than exceptional led to male servers getting higher tips than female servers. Which led the author to conclude: “Female servers are being held to a very high standard, and if this standard is not met, they are treated unfavorably in comparison to male servers who produce the same level of service quality.”
An alternative way to look at tipping is to consider it as the artificial separation of the service component from the total bill. With service charge not inclusive in bills, restaurants technically do not have to pay sales tax on the service component of meals.
The kind of discrimination encouraged by tipping isn’t only race- or sex-based. It’s also rooted in the most superficial of factors, something that literally has nothing to do with the quality of service waitstaff can provide: physical appearance. A recent study reports that conventionally attractive servers earned $1,261 more in tips per year than unattractive ones. That tipping has its advantages is difficult to question—but if such advantages are secured on the basis of arbitrariness and at the expense of fairness, of giving every server what is due them, then objections to the system are not only expected but are also necessary.
TIPPING TRENDS: 100 PERCENT TIPS, MILLENNIALS TIPPING LESS
Yet its objectionable nature has mostly escaped people. Since its conception, the trends that have defined the trajectory of the practice vacillate between two extremes: tipping grossly large amounts and abolishing the tipping system altogether. Every few decades, a restaurateur or any industry player makes it a point to ban tipping. The most notable example that comes to mind is back in 2015 when the Union Hospitality Group’s Danny Meyer resolved to eliminate tipping in his restaurants, replacing it with a policy in which menu prices would be all-inclusive. He wrote in the company’s newsletter in 1994:
“A server’s income is determined by guests’ tips rather than a weekly salary set by the restaurant… it’s [tipping] awkward for all parties involved: restaurant patrons are expected to have the expertise to motivate and properly remunerate service professionals; servers are expected to please up to 1,000 different employers; and restaurateurs surrender their use of compensation as an appropriate tool to reward merit and promote excellence.”
Fairness seems to be in place in Meyer’s proposed all-inclusive price system. As Eater puts it in one of their stories, all-inclusive pricing and fair, merit-based wages can only mean “nothing but good things for everyone.”
And it’s not only restaurateurs that have shown aversion towards the tipping system.
At surface level, the tipping system sounds exactly like a benevolent administration’s effort to reward exceptional service and encourage hospitality, but it’s actually a toxic system in that it offloads businesses from the burden of paying their workers fair wages.
A new survey by CreditCards.com found that millennials are the poorest tippers: “Ten percent routinely leave no tip; nearly one in three leaves less than a 15 percent tip and one in six millennials says they regularly choose the lowest preset tipping option, while nearly one in five gives no tip when presented these choices,” Nicole Spector reported for NBC News. This can come off as a surprise, especially since the average worker in the service industry is a millennial. But if you consider the multitude of factors that could have influenced this trend (that social consciousness—a quality a lot of millennials possess—breeds disdain against the traditional tipping model and a desire to see a more transparent alternative; the fact that they go out more than any generation and they simply can’t afford to leave tips every time; their growing demand for delivery food which can make tipping especially optional), then poor tipping millennials shouldn’t court controversy.
But 2018 has also meant finding ourselves before the other end of the tipping trend spectrum: People are now taking on what is called the “Tip the Bill Challenge.” The rules of the trend are simple: Restaurant diners leave 100 percent tips and then go on to share photos of their receipts on social media. In case anyone seeks an explanation for this kind of behavior, the answer is obvious and uncomplicated enough: Servers, the trend participants say, deserve all the tips they can get. Serving is hard work, and it’s only apt that it is met with generosity. It’s a trend that’s benefitted a lot of servers to an extent that it would simply seem caustic to question the motivation behind it.
THE ECONOMICS OF TIPPING
It’s easy to overlook the empirical data that prove the problems of tipping. But it’s hard to look past the posting of receipts as it actually highlights another questionable aspect of the tipping system. Every time someone takes on the challenge, they are guaranteed positive reinforcement in the form of public admiration. This isn’t a negative thing, but in economic terms, this reward system has several interesting—if not entirely harmful—implications:
- Tipping imposes a negative externality (in the form of social pressure)
One important thing that the abovementioned reward system tells us is that tipping is a social norm. And what are social norms but instruments that ensure uniform behavior? When a participant of the Tip the Bill Challenge shares their receipts online, they are unconsciously pressuring other people to do the same.
This is a negative externality—a cost imposed on a third party as a result of a certain transaction. In the case of the Tip the Bill Challenge—and of tipping, more generally—people that are not part of the transaction (and who may, incidentally, tip less generously or do not tip at all) suffer a negative externality in the form of social pressure.
This may seem like a farfetched proposition, but this is how social norms usually function. As for it being low-stake, it’s important to consider that social pressure in the context of tipping means to indirectly force the less affluent to increase the amount of tips they leave, which can actually contribute to an upward surge on spending by the median earner. This increase, according to the economist Yorgam Margolioth, can lead to excessive consumption, less leisure time, and an overall decrease in welfare.
- Tipping, when paid in cash, facilitates tax evasion
An alternative way to look at tipping is to consider it as the artificial separation of the service component from the total bill. With service charge not inclusive in bills, restaurants technically do not have to pay sales tax on the service component of meals. According to another study by Margolioth, should servers (instead of restaurants) be in charge of reporting the tip income to tax authorities, tip income is likely to be underreported. And when tip income is underreported, it is usually disregarded when computing the servers’ income due to social security benefits.
- Tipping is an economic anomaly
One of the questions economists struggle with when it comes to the tipping system, according to a study by the economist Megan Nelson, is: Why do people pay an additional amount when they have absolutely no legal obligation to do so? We’ve already touched on the social aspect of the motivation behind tipping, but it [tipping] is still hard to justify economically since it doesn’t follow the economic logic of paying based on productivity. Again, servers are not paid according to their productivity and the quality of service they provide. That’s already one economic rule breached. But this is a problem that, oddly enough, tipping can artificially correct since tips can potentially raise wages to the efficient level. This is good news to servers, but supposing restaurants stuck to that pattern (paying below minimum wage and allowing tipping as a corrective), then it should also follow that cooks—who arguably contribute more to restaurant service—are given tips. But this is not the case in restaurants.
So what now? How to end a system whose benefits are immediate and explicit, but whose true corrosive nature is insidious and mostly manifests itself in the long run? Zagat’s 2018 National Dining Trends Survey found that among 13,000 diners, 43 percent want to abolish the tipping system. It’s a good number, but it’s not enough to uproot a tradition that’s been in place since the 17th century. It’s worth mentioning though that restaurateurs are in a particularly powerful position to change this aspect of service.
Subscribe to our weekly newsletter to receive all the tools and solutions entrepreneurs need to stay updated on the latest news in the industry