Are we moving away from tipping?

by on August 30, 2005 at 8:00 am in Economics | Permalink

A top New York restaurant is replacing tipping with a mandatory twenty percent service charge.  In many other areas, such as hotels, tipping is declining as well.

Most economic analyses of tipping ask why so many customers will give up money for no apparent return.  Put this puzzle aside, and ask why an establishment might move to the fixed charge. 

Ralph Frasca explains the legal difference between a tip and a service charge.  The employer may legally keep the service charge but not the tip.  This suggests at least three hypotheses:

1. A restaurant is using the new service charge to raise prices.  One of the new service charges is set at 20 percent, which is more than most people tip.  (Do note: this one particular New York restaurant claims they wish to redress the distribution of tip money in favor of the kitchen and away from serving staff.  Furthermore the restaurant is fancy, and some customers do tip 20 percent or more there.)

2. The balance of power in labor markets is shifting against workers.  We therefore see owners trying to capture tipping income.  Some of this income will be given back in the form of higher wages, but some of it will be kept by owners.  Perhaps this is the most palatable way of rewriting the implicit labor-management contract.

3. Employers can monitor waiter/waitress quality better than before.  So why leave compensation in the hands of the customers?  Under this hypothesis, employers are not looking to capture tipping income, rather they seek to control it by their own standards.

Here is James Surowiecki on tipping.  Here is a New York Times article on tipping.  Here is my previous post on tipping.  Comments are on, and thanks to Stephen Bainbridge for a pointer and suggestion.

Addendum: One ranting waiter notes: "Experience has shown that customers use verbal praise to supplement a poor monetary reward."

Factory August 30, 2005 at 8:57 am

“2. The balance of power in labor markets is shifting against workers.”
Or the opposite, the workers are taking on risk by using the tipping method, verses a flat wage.
I suppose the way to work out if tipping benefits workers or employers more is to compare how well they do in non-tipping countries verses tipping countries.

josh August 30, 2005 at 10:54 am

Signaling?

“Good evening, sir. Welcome to Per Se, where we have the finest in cuisine and service. As such 15% will simply not do. It would be an insult to our highly trained and knowledgable wait staff. No, we will not have any of the 18% riff raff in here. Not at Per Se, thank you.”

Dan Hill August 30, 2005 at 11:05 am

Or perhaps a recognition that tipping imposes unnecessary transaction costs on the customer. You get a different perspective on tipping when you come from a place where it is not customary. Here’s my Aussie in the US perspective: http://1800blackhole.blogspot.com/2005/08/signs-of-sanity-on-tipping.html

gundryggia August 30, 2005 at 11:34 am

Alternate hypothesis: They don’t want you to tip less for your wine than for your food.

A number of top restaurants do this; I have been happy with the service at these restaurants, except perhaps at Berkeley’s Chez Panisse (the restaurant downstairs) where service on the night I was there was mediocre at best. To me a fixed service charge says “we are professionals who provide a certain level of service, regardless of whether we think you are an easy mark for a 30% tip.” Of course they can break that contract, but judging by Keller’s French Laundry I wouldn’t worry about Per Se. If you are worried that service will suck without the almighty lure of the tip, that is fine; Per Se certainly does not need your business.

william August 30, 2005 at 1:12 pm

Coming from (less-tipping) Ireland, I’m with Dan Hill. Maybe they’re doing it because customers don’t like tipping.

David Faden August 30, 2005 at 2:00 pm

Something I’ve wondered about: Why should we tie the tip to the price of the meal? Does it really take 3 or 4 times as much skill/effort to deliver a fine steak than say some scrambled eggs?

Robert Schwartz August 30, 2005 at 4:26 pm

No one has mentioned the tax angle. Waiters often “forget” to report all of their cash tip income to the IRS. Putting them on the payroll will ensure fuller revenue collection.

Christina August 30, 2005 at 6:27 pm

I worked at a restaurant that had service charges that were not paid to the serving staff, but the staff had higher hourly wages than tipping establishments paid. Though I never walked out with wads of cash at the end of a night, I was also not subject to the financial pain of a slow night either. I never had to to tip out my bus boy and foodrunner as I did at other restaurants, which can be a pain on really slow lunch shifts.

One result of the different payment schemes were different kinds of servers. By and large the servers at the service charge restaurant are working there as a primary vocation. They are professionals. At tipping establishments you are far more likely to encounter servers who are waiting tables as they go to college. They are earning extra cash.

I don’t think that abandoning tipping would be all that bad. The single biggest reason people don’t return to restaurants is because of poor service. Managers and owners know that a person who doesn’t enjoy their experience might still leave a reasonable tip and just never come back. Or even worse, tell their friends not to go there. Restaurants will learn to emphasize a strong service ethos, like any other customer service oriented business.

Ali August 31, 2005 at 10:47 am

My problem wiht Hypothesis 1: When a restuarant wants to increase prices, it just increases prices. Why should it suddenly decide to move from one payment system to another? I don’t think it is a mere price increase. It must be something else.

DWG September 2, 2005 at 12:44 pm

This is a pure hypothesis, since I am not familiar with the financial arrangements that the particular restaurant has with its workers. But, assume that the restaurant believes (or is under strong social pressure to believe) that its customers will feel better about frequenting it, if it provides a “living wage” and conventional employee benefits, such as health insurance. By imposing a service charge, rather than paying a lower wage and relying on tips to workers to make up the difference based on merit, the restaurant can: (a) increase the nominal amount it pays its workers and therefore claim that it is compensating its workers better (even if this is not actually true, especially for the better workers because the loss of tips exceeds the increase in compensation) and (b) claim to be socially responsible by providing health insurance, rather than allowing the workers to make the choice whether to buy this for themselves from their tip revenues. If this hypothesis has any validity, then factor 2 would appear to be in play, but the reason for the employer exercising greater power has to do with meeting social agendas which reduce the autonomy of the workers to bargain to maximize their benefit. Also, if this hypothesis has any validity, it would tend to work against factor 3, because it would probably lead to more uniformity in the individual workers’ compensation which would be inconsistent with compensating workers on the basis of merit.

Barkley Rosser September 5, 2005 at 3:28 pm

It is pretty clear that tipping is a classic phenomenon of the evolution of social norms. It is not a payoff for service, and there is now a large literature on this. The consensus is pretty much there.

The really odd phenomenon is that the average tipping rate in the US seems to be going up from 15% to 20%. However, this seems to be occurring in the most expensive restaurants in the largest cities. This is clearly not a matter of rewarding the needy waitpeople, who are already best tipped in those restaurants. This looks like some one-up-manship game among clients in these restaurants, which has been generating a new norm.

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压制钢丝绳



起重链条




链条


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护角


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安全网


吊网


钢板起重钳


起重钳



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安全带

 

 

 

 

 

 

Missliang August 17, 2007 at 1:42 am

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木风淋语 August 18, 2007 at 3:04 am
Anonymous October 13, 2008 at 10:30 pm

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