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Why does America have tipping?
Back in the days of Fifty Questions, a loyal MR reader asked:
I am interested in the economics of tipping. This seems appropriate, since you seem to eat out a lot. Why in the United States is the pay of waitstaff structured as it is as compared to elsewhere, where tipping is less expected?
The best way to understand tipping is to go to a restaurant you will never patronize again. Once your meal is over, when she is not looking, leave your tip not on your table but rather on another table she served. That way she still gets her money and you have in no way ripped her off.
That is psychologically tough to do. You fear the waitress will think you are a lout and a deadbeat. Of course in no-tipping countries, or for that matter non-tipping sectors, this dilemma does not arise.
The real question is why America is structured so that waiters and waitresses can sell feel-good services ("you are a generous tipper and a fine man") to strangers, in return for money. In other words, how did waiters end up as fundraisers, noting that the final Marshallian incidence may lower their wages by the amount they receive in tips? Most cross-cultural explanations of tipping start with the agency problem between diners and servers ("can you bring my drink now?"), but I believe that is the wrong approach. I view tipping as correlated with effective fundraising in other areas, and Americans as being especially willing to set this additional fundraising arena in motion.
Posted by Tyler Cowen on May 16, 2007 at 04:27 AM in Food and Drink | Permalink
Comments
Tipping is just a tax dodge. Empoyers paying staff badly to encourage tipping is a strategy to pay their employees in the most tax efficient way. In the US a large part of a waitresses pay is from (tax-free) tips. In Europe with minimum wage requirements waitresses get paid a salary (or piece rate), and tipping is much lower.
Posted by: Daniel at May 16, 2007 5:11:08 AM
I would suspect that tipping practices have something to do with social equality, and particularly employment practices and the employer/employee power relationship. Wouldn't the employer want tipping? It seems to me that it permits him to price discriminate. On the other side, here's what I would have thought as an employee:
"I'm an employee, not a servant. You buy my services, I don't just give them to you and hope for compensation. Just because I serve you food doesn't mean you're better than me."
I don't like to tip, either. I feel it poisons my relationship to the waiter/restaurant, making it less of an equal exchange.
Posted by: Harald Korneliussen at May 16, 2007 5:35:23 AM
Are tips actually tax exempt in the United States?
Posted by: Guan Yang at May 16, 2007 6:07:59 AM
Tipping is a good way to foster good service
delivery since in order to get the tip the
waiter has to perform good. This reduces
monitoring costs to the bar owner/manager
translating supervision to custerms.
This systems requiere customer empowerment,
a culture of saying what is good or bad in
a restaurant. In oder words, a culture of
getting what I paid for. In my country, Spain,
this is not always the case, also becouse
the oportunistic behaviour of customers is too
big.
Posted by: joan oriol at May 16, 2007 6:23:33 AM
Here is a barkeep in Cincinnati, talking about tips - less theoretical than here!
http://tavernwench.blogspot.com/2006_12_01_archive.html
Posted by: dave.s. at May 16, 2007 6:56:32 AM
Guan,
Tips are subject to income tax, but they are vastly underreported.
Posted by: The Other Brock at May 16, 2007 7:00:04 AM
I think tipping is some kind of corruption .
Posted by: Hakan at May 16, 2007 7:02:40 AM
In the UK, tips goes straight to restaurant owner.
There was a case from a London Covent garden restaurant where waiter were denied the tip and all went straight to restaurant owner.
Posted by: anpny at May 16, 2007 7:22:30 AM
To me the economics of tipping are pretty straightforward: it's the only way to ensure good service. Service in France is famously horrible because service is included and tipping is not part of the culture, while in places like Israel and the US service is always good. In the US you sometimes get mediocre service, but never MEAN service the way you often get in Paris (and I'm French, so it's not an anti-tourist thing, it's just the way things are).
Posted by: PEG at May 16, 2007 7:33:11 AM
Tips are Lindahl prices for local public goods...not the individual attentions of a server (that is a private good), but the overall quality of the experience or the time spent waiting (for a table, for a server). Because these payments are self-assessed and often paid in cash,they seem to be payments to the server. But the compensating wage differential
induced by tips, means they actually go to the proprietor, the server's
employer, the supplier of the local public good.
Posted by: David Flath at May 16, 2007 7:52:29 AM
Here is a literature review
http://ideas.repec.org/p/wpa/wuwpot/0309006.html
by Ofer Azar
http://www.oferazar.com/
who has a bunch of papers on the economics of tipping
Posted by: hbi at May 16, 2007 7:57:02 AM
I've seen a few personal ads from women saying that they kind of guy they're looking for is a good-tipper. Thus, I suggest that tipping serves partially as a signaling mechanism, indicating that a spousal candidate would be generous with his financial resources.
It would be interesting to see if women's preferences for their companion's tipping change over time. Before marriage, generous tipping is a signal that the man will be generous with the spouse. After marriage, it's (a) money that could be "better" spent on the wife; (b) potentially flirtatious behavior between the man and a younger woman.
Posted by: TJIC at May 16, 2007 8:03:23 AM
I'm not convinced that Americans are friendlier because of the tip.
All services (even those that don't provide an opportunity for tipping) are provided by Americans with friendlier dispositions. Call up HSBC with something they've done wrong & then call Bank of America or whatever with teh same problem, guarantee you that BofA will at least pretend to care.
Posted by: priscieve at May 16, 2007 8:17:11 AM
Maybe you need a better example than Bank of America? "Friendly, effective service" is not generally what I associate with them.
Posted by: perianwyr at May 16, 2007 8:29:42 AM
A meal at a restaurant is a product. The producer (the owner) utilizes various inputs including labour in the form of waiters and cooks to deliver the finished product. Now, prosumably, consumers will only pay for the meal exactly what they think it's worth. But with the tipping system, they split the total payment between the bill and the tip.
If the VAT on a meal is, say, 16%, the tipping requirement is 10% of the value of the meal before tax, and the price menu of the meal (including VAT) is $100, for instance, then the diner ends up paying $108.62. The waiter earns minimum wage, which is say 5$ an hour. Assuming he/she serves some 3 meals in an hour, he/she pockets around $31 bucks every hour (but this can vary a lot from hour to hour, and night to night). The owner pockets $253.62, and pays the rest of the $300, or $41.38, in taxes, and $5 in wages.
Now, if we were to get rid of the tipping system, the owner of the restaurant could charge $108.62 for the meal, including VAT. He would take in $326, pay $45 in taxes, and pocket $281 before paying wages. Now, he has to pay salaries considerably higher because waiters are not getting tips. If he compensates the waiter/tress by paying him/her a higher salary, (slightly below what he/she would make on tips plus hourly $5 wage but not so far below that he/she wouldn't be willing to work; say $25 an hour) he still walks off with $255.9, or $2.3 more dollars every 3-meal hour.
I would think it would be sensible for a risk-averse waiter/tress to take the cut in pay in favor of a steadier income. Then the owner would be assuming the risk; if business is good enough that, on average, he'll get 3 diners per hour per waiter every day, it makes sense to drop the tipping system. Otherwise, and I think most restaurants are in this position, it's better to have tips.
I'm sure I made a terrible mistake in calculation somewhere, so please correct me, and I'm also ignoring the fact that dropping the tipping system could undermine the quality of service, and thus hurt the booking rates of the restaurants, thus forcing the owner to re-institute it.
Posted by: Yotuel at May 16, 2007 8:30:18 AM
Any explanation that says tipping has arisen because it offers better service is wrong for two reasons. 1) It doesn't (the French are just being French, service in Australia or the UK is just as good as here, without all the transaction costs of tipping) 2) It doesn't explain the difference across countries. The history of tipping is interesting if not illuminating. Tipping was not important in the US until after the turn of the century (or maybe after the civil war). Then it became important as travelers from the US to Europe returned and began tipping because that's what they did over on the continent at that point. Then things reversed. Unfortunately I can't remember where I read this, so I can't reference it, but it raises more questions than answers.
Posted by: a student at May 16, 2007 8:49:47 AM
You pay the restaurant for the food and the waiter/waitress for the service. At leas that is how I have always approached it.
Posted by: Jacob at May 16, 2007 9:06:10 AM
Tipping becomes more complex the more you think about it. I would venture that tipping attracts a more entrepreneurial type of employee, as is also the case with sales jobs paid by commission. If the prospective employee thinks he can do the job very well, then he would be attracted to a position in which compensation is closely correlated with performance. If the prospective employee lacks confidence in how well he will do the job, he would prefer all of his compenation to be in the form of a pre-arranged salary with only periodic performance reviews and pay adjustments.
The entrepreneurial spirit encouraged by tipping would be good in that it leads waiters to take "ownership" of their jobs and be more interested in keeping the customers happy. Also, in places where tips are pooled, tipping should cause waiters to monitor each other to make sure that no one is dragging down the pool through poor performance. Likewise, pooling should discourage competition among waiters that would hurt business (e.g., waiter A stealing waiter B's dishes at the pass-through, so that waiter A's customers benefit at the expense of waiter B's).
On the other hand, the entrepreneurial spirit could also have negative consequences. The interests of waiters and employers are not perfectly aligned, with the result that the waiter could "cheat" the business in order to extract a bigger tip (e.g., persuading the cooks to provide "free" appetizers for repeat customers). Also, I understand that waiters are a notoriously rebellious and independent bunch.
How this all may be related to U.S. culture, I don't know.
Posted by: jp at May 16, 2007 9:25:52 AM
The tax explanation is interesting, but it would predict a higher expected tipping rate in countries with higher payroll taxes than the U.S., which is not observed.
Tipping as fee-for-service is interesting, but why then is tipping calculated as a fraction of the total bill, when presumably the quality of service does not scale linearly with the price of the food. And personally, I have never experienced service so bad that I felt able to not tip.
Tipping as a singal fits with my experience, if the primary audience for the signal is one's self. We tip in order to feel generous in a culture where many kinds of generosity are socially awkward.
Posted by: Cyrus at May 16, 2007 9:27:06 AM
When I eat at a diner, I love leaving hostages at tables because I have to go to the counter in order to get change for a tip. If that person isn't left at the table, the waitress will think I'm taking off without paying her. She will!
Posted by: Rue Des Quatre Vents at May 16, 2007 9:34:53 AM
jp said: "The interests of waiters and employers are not perfectly aligned, with the result that the waiter could "cheat" the business in order to extract a bigger tip (e.g., persuading the cooks to provide "free" appetizers for repeat customers)."
Having worked as a cook in a relatively pricey (for the area) restaurant with lots of repeat business, I can attest that this happens /all/ the time.
Posted by: Carson at May 16, 2007 10:06:23 AM
I always assumed tipping was simply a way to shift the compensation of waitstaff to the customers from the owners. In Florida, a waiter is paid $2.13/hour. The tips received make up the difference to get an average wage above minimum. Maybe this is not how tipping started, but I believe it contributes to it not going away.
Posted by: J at May 16, 2007 10:09:35 AM
Tyler, it's not just that the waiter/waitress will think you're a deadbeat. It's that you could *ruin his or her day*.
Do you think the waitress's happiness at the end of the day is a rational, linear function of her total tips? No; if you do your experiment, she'll find one unusually big tip (happy) and one missing deadbeat tip (unhappy). Thanks to negativity bias, that's an overall bad day. That (I say, trying to imagine myself as unselfish) is a better reason than shame to not dodge tips.
Posted by: Ben M at May 16, 2007 10:43:54 AM
From my current class on the Economics of Information, a few thoughts.
Tipping shifts some risk from the employer to the employee, leading to a more optimal total utility outcome because the both parties benefit from distribution of the risk according to the relative risk tolerances of the two parties. The restaurant certainly takes on the majority of the risk, but transferring some is probably more optimal.
Moral hazard also plays a role; comment cards can only go so far in ensuring an agent's good behavior. Tipping is a straightforward way to align the agent's incentives more closely with the restaurant.
I'd say the best result for the servers is that tipping is likely to increase their average intake--because the job is riskier, they are receiving a premium for that risk, a positive difference between the wage they "feel" like they are receiving and the actual average wage they get. Waitstaff that are more tolerant of risk will make more than those who are less tolerant.
Posted by: Chris Milroy at May 16, 2007 10:57:36 AM
Australia and New Zealand are English-speaking countries in which tipping usually does not occur. In my experience, the service in those countries is just fine. I much prefer their system to the "everyone has his hand out" one in the US.
Posted by: Ned at May 16, 2007 11:04:08 AM
Tips are a way to pay the waitress for the service. If the service sucks than you give her/him less of a tip than u would if you had better service. Tipping also make the difference between their normal hourly pay, and sometimes you can make more than minimum wage. Tipping is one of the major perk in serving, but you have to be good at serving before you'll make the big bucks, just like in any other job i guess.
Posted by: katie at May 16, 2007 11:05:04 AM
I've seen a few personal ads from women saying that they kind of guy they're looking for is a good-tipper.
Hahahahahahaha!
Good one!
This is where we learn the difference between what women (and people in general) say they want, and what they really want.
That strategy will simply make you poorer and lonelier.
Posted by: Person at May 16, 2007 11:15:39 AM
What really throws a monkey wrench into the works is when restaurants have tip pooling. I've never been a food service employee, but anecdotally through friends, this sort of scheme is common especially with bus staff and bartenders.
In these cases, tipping is merely a way for an employer to avoid paying a livable wage.
Posted by: fustercluck at May 16, 2007 11:24:28 AM
I traveled to New York with a a couple Italian colleagues. We ate at a quite nice, trendy, and fairly expensive restaurant. The food was just okay, but our table was terrible and the service left alot to be desired. My colleague and I were clients, so the other guy was paying. We were all aware of the tip. But the payor suggested to us he was going to leave no tip (I'm guessing it would have amounted to around $50 or so). I'd never done that before, even with lousy service. So, my eyes shot up, but I thought, what the hell - why not?
Well, let me tell you why not, because the restaurant manager/owner confronted us as we were leaving and was very insulting. I was surprised by how vociferous and aggressive he was. Personally, as much as I think he over-reacted, that was the day I learned that tipping, in fact, is obligatory, and it seemed to be much more telling of us (that in fact we were dead-beats) than it was a commentary on the service (which was poor).
Posted by: glenn at May 16, 2007 11:31:28 AM
Glenn -- I hope that one of you told the manager/owner *why* you left no tip.
During my brief stint as a waiter while in college, I had one customer who told me (pleasantly) why he was not going to leave me a tip. (I had forgotten to bring him the glass of water he requested and didn't come back to check.) That was a valuable experience.
Posted by: jp at May 16, 2007 11:40:41 AM
Tipping saves restaurants management resources by shifting the burden of evaluating an employee's performance from the management to the client.
Chris Malloy is right on target about many of the incentives that tipping provides for waiters and restaurant owners. But evaluating your service on a scale of 1-10 when you sign your check would certainly be more efficient for customers than calculating a percentage based on how effective the service was.
Unfortunately, the practice is proliferating in this country (I've seen tip jars at self service counters at Subway and Starbucks). But the next time you're at dinner with friends, try discussing the idea of tearing down this American institution and you'll soon feel the wrath of anyone who has ever waited tables. Maybe that's it's self-perpetuating - because a large percentage of Americans have held the job at one time or another.
Posted by: Statastico at May 16, 2007 12:26:49 PM
New York is notorious for having waiters and managers thinking tipping is mandatory
and being obnoxiously aggressive about it. They should be told to go to you know where
when no tip is deserved.
The lit on this is huge (some of it appearing in the journal I edit, including the paper
by Azar, cited above). Lots of theories, although I tend to ones along the lines of social
norms and all that.
One question. There has been a recent trend to an increase in the "normal" restaurant tip, from
15% to 18-20%. This has been triggered by high end restaurants in big cities. Which theory does
this support?
Posted by: Barkley Rosser at May 16, 2007 12:32:05 PM
If tipping is for service why is it a percentage of the bill and not a fix amount to have a meal served? Does the highest and the lowest priced menu items require a different level of effort to serve?
Posted by: joan at May 16, 2007 12:46:36 PM
A restaurant will want to pay its best employees more than its worst. Tipping lets this happen in a way that does not generate ill will toward the employer.
The waitron gets a higher salary by underreporting tips on taxes.
The customer gets a way to protest bad service without confrontation.
Posted by: sourcreamus at May 16, 2007 1:26:51 PM
Menu items don't require a different level of effort to serve, or at least the difference in effort is only weakly correlated with price. (more menu items or more people means more effort though).
But the effort required at an expensive place probably does not scale with price. Which is why waitstaff at expensive or very fast moving restaurants make a lot more money.
I think the risk transfer theory is significant. It's very hard for me to believe that certain waitstaff would make as much money as they do if tipping were not normal.
Do servers at fancy restaurants in non-tipping countries who work full-time regularly make a solid middle class income? (at or above the median). My SIL went from being a waiter and bartender to working in kitchens (while going to restaurant school to become a chef). The first job where she made more money than when she serving was as the chef/GM at a 5mil/year revenue restaurant. Before she got to sous-chef level, she would moonlight as a server to make money.
Anyway, in payment for dealing with risk and class issues, good waitstaff in efficient or pricey restaurants make much more money than they could in comparable skill jobs.
Posted by: Michael Sullivan at May 16, 2007 1:27:32 PM
I've always thought you were supposed to tip between 10% and 20%, varying the tip level to correspond with the level of service. The only circumstances you should tip less than 10% is that the service was so bad that you complained to the management about it, and you can tip over 20% if they did something outstanding (or you're just feeling really generous).
Posted by: Jacqueline at May 16, 2007 2:11:18 PM
I agree with the previous posters who suggest that tipping is an easy and relatively cheap way to monitor quality of service.
I've also wondered if tipping is a way for restaurants to hire attractive servers, who customers certainly prefer, without explicitly discriminating against unattractive people. It may be hard for restaurants to explicitly not hire unattractive people or pay unattractive people less. But it is certainly easy for restaurants to let their customers tip unattractive people worse. The correlation between appearance and tips might be substantial enough that, in equilibrium, few unattractive people find waiting tables to be the best available job option. It would explain how nearly all waiters are better-looking than average, especially at expensive restaurants at which tips probably make up a larger component of each server's take.
Posted by: mschrist at May 16, 2007 2:21:31 PM
I've got a mystery for you: In China, tipping has been very much frowned upon, particularly since the Maoist era where it was thought to imply a "servant-master" relationship. Even today, your everyday restaurant there won't accept tips even if you insist. However, at "high-end" restaurants, and particularly at Western hotel restaurants, tipping is expected and a 15% gratuity is added on automatically for large parties.
I'm going to just suggest path dependence for tipping. For every irate former waiter who insists on big tips, I suggest that, when I was younger, I made the same minimum wage and did not get tipped for bagging his movie rentals, cooking at his grandmum's nursing home, or constructing the shelving in his father's warehouse. I think the whole tipping culture is ridiculous, to be honest.
Further, if "getting good service" is the reason for tipping, restaurant owners ought simply fire workers who are giving shoddy service in the first place! How much additional incentive would tipping give?
Posted by: cure at May 16, 2007 2:37:52 PM
What I find interesting about the discussion here is that it is about tipping waitstaff. Waiters and waitresses are not the only people in the US who receive tips.
As well as other food-bringers, such as pizza delivery folks or room service folks, there are taxi drivers, doormen, and, I'm sure, others that I can't think of off the top of my head.
Perhaps the issue could be made clearer if we expand the discussion beyond restaurants?
Why do I tip the pizza guy but not the UPS guy?
Why do I tip the doorman at the hotel if he gives me directions, but not the gas station attendant?
And, on the restaurant topic -- how does the common "gratuity included for parties of eight or more" factor in?
Posted by: ocmpoma at May 16, 2007 3:29:40 PM
For pizza guys, etc, I think it's a way to deal with agency problems. The delivery guy has been compensated for his services by the pizza parlor, but there's a period there where he isn't under observation or control. I can offer feedback to the employer if I get a cold or ruined pizza, but I have no guarantee that said feedback will result in the offending pizza guy being disicplined or fired. And for anything short of firing, he may hold a grudge and purposefully ruin my next pizza when I order once again from the same parlor (which is likely.) And he knows where I live.
Better to tip for good service and keep the relationship positive even when he's out of sight of his manager.
Posted by: Bernard Guerrero at May 16, 2007 4:34:36 PM
Anyone living in an apartment in NYC knows well the perils of under-tipping. What constitutes under-tipping is obviously up to interpretation, which makes for some interesting interactions - verbal and nonverbal - around the winter holidays.
Posted by: fustercluck at May 16, 2007 4:39:28 PM
"Waiters and waitresses are not the only people in the US who receive tips."
Yeah. I live in Las Vegas. Even the people who check your car emissions here expect tips.
Posted by: Jacqueline at May 16, 2007 5:21:16 PM
Cure, the Chinese are just responding to culturally illiterate Americans. Yes, if you leave a tip at an average restaurant, the waitress will chase you down the street to return your money, which you obviously forgot on the table. Have you seen any Chinese tip at the high end restaurants? My guess is they're not, because I never saw it.
Posted by: Matt at May 16, 2007 6:05:29 PM
Waitresses are whores, prospective brides are whores and the male tipper is the whoremaster. Do we not live in a brothel?
Posted by: ricpic at May 16, 2007 6:30:26 PM
I am a waiter at a very large Italian restaurant. Give you two guesses as to which one I'm talking about. I look at waiting tables like this. Waiting tables is akin to being a small business owner. The restaurant supplies the infrastructure and inventory (facilities, food, support staff, advertisement etc.) which provides a clientele that the servers depend on to make money. At the end of the meal, the patron pays the bill. The server in turn pays the restaurant for the food and drink and keeps the margin, which we call tips. The server has to tip out his support staff as well. This consists of bussers, bartenders, and sometimes hosting staff. This is an added cost of doing business.
People who become servers don't think of it like this for the most part though. People are drawn to these positions (as was I) by the fact that you can make upwards of $17 to $25 per hour. The risk-reward profile is much better than my golf course job that paid $6 per hour.
This is how I look at tipping. It has definitely been promoted by restaurants as a means to pay their employees a lower wage (my "wage" is $2.13 per hour). Servers are drawn to these jobs because of the relatively good pay. A server's perception of the tips he or she receives is based upon tradition. People have always tipped 15% so that's how it should be. I find though that I expect more out of people. I have had experiences where I have two similar tables with similar bills, with both tables receiving similar service. One table may leave 30% while the other leaves 18%. Over time, I become unhappy with people leaving less than 18% or any other arbitrary number. The point is that tipping is a tradition that has been promoted over generations. Server's expectations of good tips have helped ratchet up the percentage that people tip over time. Nobody wants to look like a scumbag, so as time goes on tips continue escalating.
Another thing I want to point out is that the tip a waiter receives is not to ensure good service ex ante. Rather, the expectation of tips from a table at the end of a meal helps to ensure that service should be good. This creates a free-rider problem where servers expect a decent tip at the end of a meal, and those that refuse to tip are receiving the good service without having to pay for it at the end.
It would also be interesting if it were possible to look at the economic effects of server's spending compared to other's spending. This would examine the effects of taxation, since it is true that servers underreport their income drastically compared to other occupations. This would be difficult task because you would have to seperate their demographic distributions, take into account that most servers are college students, etc. I just think it is an interesting thought experiment on whether or not servers provide a real life example of the benefits of lower real taxation.
In summary, tipping has been propigated on the public as an obligation. Restaurants like this. Servers have come to expect it. There is no exact science on what a good tip looks like. It is all arbitrary.
Posted by: Chuck at May 16, 2007 6:46:41 PM
I am a waiter at a very large Italian restaurant. Give you two guesses as to which one I'm talking about. I look at waiting tables like this. Waiting tables is akin to being a small business owner. The restaurant supplies the infrastructure and inventory (facilities, food, support staff, advertisement etc.) which provides a clientele that the servers depend on to make money. At the end of the meal, the patron pays the bill. The server in turn pays the restaurant for the food and drink and keeps the margin, which we call tips. The server has to tip out his support staff as well. This consists of bussers, bartenders, and sometimes hosting staff. This is an added cost of doing business.
People who become servers don't think of it like this for the most part though. People are drawn to these positions (as was I) by the fact that you can make upwards of $17 to $25 per hour. The risk-reward profile is much better than my golf course job that paid $6 per hour.
This is how I look at tipping. It has definitely been promoted by restaurants as a means to pay their employees a lower wage (my "wage" is $2.13 per hour). Servers are drawn to these jobs because of the relatively good pay. A server's perception of the tips he or she receives is based upon tradition. People have always tipped 15% so that's how it should be. I find though that I expect more out of people. I have had experiences where I have two similar tables with similar bills, with both tables receiving similar service. One table may leave 30% while the other leaves 18%. Over time, I become unhappy with people leaving less than 18% or any other arbitrary number. The point is that tipping is a tradition that has been promoted over generations. Server's expectations of good tips have helped ratchet up the percentage that people tip over time. Nobody wants to look like a scumbag, so as time goes on tips continue escalating.
Another thing I want to point out is that the tip a waiter receives is not to ensure good service ex ante. Rather, the expectation of tips from a table at the end of a meal helps to ensure that service should be good. This creates a free-rider problem where servers expect a decent tip at the end of a meal, and those that refuse to tip are receiving the good service without having to pay for it at the end.
It would also be interesting if it were possible to look at the economic effects of server's spending compared to other's spending. This would examine the effects of taxation, since it is true that servers underreport their income drastically compared to other occupations. This would be difficult task because you would have to seperate their demographic distributions, take into account that most servers are college students, etc. I just think it is an interesting thought experiment on whether or not servers provide a real life example of the benefits of lower real taxation.
In summary, tipping has been propigated on the public as an obligation. Restaurants like this. Servers have come to expect it. There is no exact science on what a good tip looks like. It is all arbitrary.
Posted by: Chuck at May 16, 2007 6:48:07 PM
At restaurants I eat at I like to leave what I consider above average cash tips on the table rather than paying anonymously on the charge card. I think it helps create a better level of service and attention on subsequent visits. I like them to know me when I go to a place and cash tipping is a reason for them to remember you.
Now I'm a pretty undemanding and friendly customer, but I _never_ get bad service at restaurants where they know who I am. I'm telling them I'm the kind of customer that they want.
This doesn't explain tipping at places where I rarely eat, but to some extent tipping isn't solely a signal to make me feel good about myself. I expect a payback.
Posted by: Shane Milburn at May 16, 2007 11:04:33 PM
"Why do I tip the pizza guy but not the UPS guy?"
Risk transfer. There was a Dominos driver who was shot a few years ago (I knew his family), and aside from the increased wear-and-tear on your personal vehicle (because no pizza company provides vehicles for a driver, at least none I've ever seen of heard of), you risk all the way up to personal injury and significant property damage, such as when my truck was totaled. And not insurance company-style "not worth the expense to fix" totaled, but rather "I was this close to being killed" totaled. I sympathize with servers, but none of them risk their health and property as a matter of course during their job in the same way.
Which says nothing about why tipping works but provides some insight as to WHO you might be expected to tip. Not that most people know to tip the pizza guy...
Posted by: agm at May 17, 2007 2:18:38 AM
Oh, and if you read the Section 26 (the tax code), it turns that except for what's essentially a few enumerated exceptions, anything you (or its equivalent in money) counts as taxable income.
Posted by: agm at May 17, 2007 2:21:35 AM
[ And, on the restaurant topic -- how does the common "gratuity included for parties of eight or more" factor in? ]
Because for some reason when you eat with a large group people suddenly become stingy and try and make out for less than they owe. And also calculating the tip is error prone as no one wants to think that they are paying 'the tip' for the guy who got the $30 meal vs the $20 one.
What I don't understand is why people don't just take the bill (say 8 people at $240) and calculate the tip based off of that and divide by 8. Its not like the person that got the $10 meal received less service than the $50 eater.
Oh and another thing: for some reason people forget about tax when calculating the tip. If they don't see the end bill they think their total bill on a $30 meal should be $35 with the tip. At an 8% sales tax that's more like a $2 tip.
Posted by: BlogReader at May 17, 2007 10:14:47 AM
I tip 20%+ cash (rounded up to even dollars) at places I frequent. I never have to wait. I get the same waiters, who mysteriously remember I don't like to sit under the A/C and take extra lemon with my tea.
The waitstaff act as my agents. I like the tipping arrangement, because they realize that I, not management, am the one paying them.
Posted by: KevinM at May 17, 2007 5:17:22 PM
Jacob, how come you get away with assessing the value of service after you've recieved it, but the food has a fixed price beforehand?
This makes it less like trade and more like begging, in my eyes. I don't think waiters should have to beg to get paid for their services. And I hate to be an object of begging.
---
The incentives theory of tipping is naive libertarianism at its worst, a kind of simple-solution-to-everything thinking that pays no attention to human factors, or anything else that could disturb their best of all possible worlds. Bleh.
Posted by: Harald Korneliussen at May 18, 2007 2:20:33 AM
Harald -- Try thinking of tipping not as a response to begging but as a performance bonus. Part of the waiter's pay is provided by the restaurant in advance, and part is provided by the customer afterwards according to how well the waiter performed. Lawyers and investment bankers often have similar arrangements: we agree to be paid x just for doing the job, and we get additional pay of y if, for example, the deal closes or the lawsuit is resolved in our side's favor.
Posted by: jp at May 18, 2007 8:09:00 AM
[ The incentives theory of tipping is naive libertarianism at its worst, a kind of simple-solution-to-everything thinking that pays no attention to human factors, or anything else that could disturb their best of all possible worlds. Bleh. ]
That would be an interesting experiment to see what happens between two similiar restaurants, where one the waitstaff works for tips and chez Harald's where people just get a salary.
I'm not sure what "human factors" you're talking about here. Care to explain?
Posted by: BlogReader at May 18, 2007 10:47:32 AM
You don't need such an experiment: compare service in Europe (or most other places in the world) with that in the US.
I find service in other countries to be on par with US service. Sometimes better, sometimes worse, but on average comparable.
Posted by: fustercluck at May 18, 2007 11:07:22 AM
The pay for service thing only really works for repeat customers
like KevinM above. But many are not in most restaurants. I think
the social norms thing is what is clearly driving things.
I tend to agree with fustercluck, although I would say that the French
can sometimes be a bit less friendly, but that is just the French (exception,
at expensive, starred restaurants the service is generally excellent, and
gets better the more stars we are talking about). In other countries, it
is about the same and better in some.
So, each nation has an equilibrium. In the US the management pays the
waitstaff less because they reasonably expect that most people will tip,
with that amount being whatever is the current norm, now in the process of
moving up from 15 to about 18-20% around the country, again, emanating from
the most expensive urban restaurants. Thus, in New York, the waitstaff is
generally grouchy, just like in France, and may kill you if you do not tip.
Posted by: Barkley Rosser at May 18, 2007 1:08:31 PM
i think tipping like consumption tax distorts prices and consumption patterns. at the point of purchase presumably the bounded rational consumer only factors in menu prices, then the bill comes and they realize they have to calculate another 10-20%.
Posted by: quitacet at May 18, 2007 11:00:03 PM
Just a reminder - Restaurant owners in the USA are permitted by law to pay their servers LESS THAN MINIMUM WAGE. Under such a wage structure, surely you can contextualize any attitude you might get from waiters and waitresses who work, say, during the breakfast shift and typically receive tips calculated at 15% of a Breakfast Special price of $2.25. Personally, I won't leave a tip of less than $1.
Posted by: Sharon Pearce at May 19, 2007 2:35:44 AM
Some restaurants in some states (California go figure) have higher minimum wages for servers. I have heard that California employees of the restaurant chain I work at make $8 an hour plus tips where I make just over 2.
Posted by: Chuck at May 19, 2007 12:45:41 PM
jp, when bankers and lawyers make such deals, it seems to me they always manage to agree beforehand what the bonus should be, and upon what criteria it should be given. Waiters don't get to do that, they just have to take what they're given.
Homework to BlogReader: explain to me the effects this has on bargaining power. What does this do to the relationship between the waiter and his clientele? Why do you suppose lawyers and bankers don't just say "Oh, just give me what you feel I deserve."
Is that enough human factors for you?
Posted by: Harald Korneliussen at May 21, 2007 3:46:20 AM
I found this article to be quite interesting. I think it is interesting to note that it is not always possible for waiters and waitresses to make up the wages that they are shorted because they receive tips. Tips given at high-end restaurants may make up for the difference, but as a former employee at a barbecue restaurant, I witnessed waitresses that did not earn money at the minimum wage level. These young ladies were basically gambling with their jobs because they never knew if they were going to have a decent night. I believe that employers usually get the sweet end of the deal in this situation.
Posted by: Jordan at May 21, 2007 7:19:50 AM
So I guess the only solution would be to let the customer select the quality of service before he or she recieves it. For a lesser quality service the tip will be lower. Or would it even be a tip in this case? Maybe call it a service charge.... Then everyone would be happy. If you are cheap, opt for crappy service. :-P
Posted by: Aaron Todd at May 21, 2007 4:39:01 PM
I haven't read every single comment. I have reached a position in my restaurant where I will just add 18 percent
to the check if I feel there's a danger of me getting less money. I have no qualms about doing so as I always give top notch service. If I feel the service was sub standard for something that was my fault, I will not add it.
I would rather have the customer tip me correctly (20-25 percent+) than add this gratuity -- because while I do most of the labor, I still lose 5 percent of my overall sales to the busboys, food runners, and bartender.
If I put the 18 percent on and the customer does not leave me anything additional..I only make 13 percent on that check. If the customer were to leave me 15 percent or less...well you do the math..it's not pretty.
I can't speak for ALL waiters...but I'm sure most would agree with me in saying that we would NOT wait tables if it paid ourely $10 or less an hour. We wait tables so we can make $20-$50 an hour from the tips! Plus at least where I work we take home cash every night and hence are always being paid!
Tip your waiter 25 percent! Thanks!
Posted by: nyactor at Aug 4, 2007 2:33:28 PM
The person who asked why you tip a pizza driver and not the UPS driver has more to do with salary and benefits than danger.
UPS drivers get killed in accidents on a regular basis, and they also get assaulted and robbed, although I don't think nearly as much as pizza drivers. However, a pizza driver generally gets paid minimum wage, or even subminimum, and a token amount per run that is supposed to cover costs, but actually covers much less than 1/2 of the cost. They also get no benefits. A UPS driver gets about $28/hr, plus benefits, after 30 months. However, they have forced overtime that makes the effective hourly much higher. Plus, UPS will be a lot more anal about performance than most pizza places.
Posted by: In St. Louis at Aug 11, 2007 5:36:04 AM
I think the tipping policy in USA is 'officially begging'. I was asked by a waitress why I paid only 10% and not 15% and if there was anything bad with the service. If there was anything bad I would not have paid 1 cent too.
It employers do not want to pay their employees so they want money from them. If the waiters want to earn more why the hell dont they go to school and study and get some other job. How the hell should they expect to earn 20-30/ hr but serving people. Go to school guys and study. Education looses its importance because of these idiots. Then they say jobs are outsourced if US has so many waiters earning 20-30/hr why will get go to school and who will companies like microsoft pay to?????? Outsource obvuosly and not pay 50-60/ hr to a waiter.
Posted by: andy at Mar 29, 2008 5:20:39 AM
Andy-
Some people can't afford school. I have been a waiter in Washington D.C. for over a year now as a side job while I go to college. Most waiters are young and only the students with enough energy and/or financial pressure take on a weekend job in addition to classes.
Whether you think it's a good idea or not to have tipping in restaurants, you should tip your waiter because that's essentially their only income. Leaving a lousy tip or none at all can seriously ruin a waiter's day.
For foreign travelers- the food industry in America is very competitive, and because of this there are many high quality restaurants for reasonable prices. The tip system works because: employers only pay their waiters $2.13 an hour and keep their cost down, helping them to charge less for better food. It is then on the customer to tip based on service quality- 10%-20%. Only tip less if you have a problem worthy of speaking to the manager about.
Other notes- as far as taxing goes, it is true that waiters claim as little cash tips as possible. However at my restaurant (and I suspect most others), all credit card tips are automatically claimed for taxes just as in any job.
Posted by: Alex B at May 5, 2008 1:53:01 AM
