The Online Tipping Outrage

The latest outrage cycle was started by April Glaser in Slate who is outraged that some online delivery companies apply tips to a worker’s base pay:

My first DoorDash order is probably my last because, as journalist Louise Matsakis put it on Twitter, “I don’t believe that a single person intends to give a tip to a multibillion dollar venture-backed startup. They are trying to tip the person who delivered their order.”

You will probably not be surprised, however, that Slate is also outraged at tipping.

Tipping is a repugnant custom. It’s bad for consumers and terrible for workers. It perpetuates racism.

But one way for a firm to get rid of tipping is to guarantee a payment per delivery. Many delivery workers may prefer such a system because tips are often perfunctory and therefore from the point of view of the worker random or they vary based on factors over which the delivery person has little control (e.g. worker race but also the customer’s online experience and whether other workers got the pizza into the oven on time). In other words, the no-tip system reduces the variance of pay. Moreover, it won’t reduce pay on average. Delivery workers will earn what similarly skilled workers earn elsewhere in the economy whether they get to keep “their” tips or not. The outrage over who gets the tip is similar to complaining about who pays the tax, the supplier or the demander.

There are exceptions. In some industries, such as bartending, the quality of the service can vary dramatically by worker and tips help to reward that extra quality when it is difficult to observe by the firm. In these industries, however, both the workers, at least the high quality workers, and the firms want tips. If the firms themselves are removing tips that is a sign that they think that the worker has little control over quality and thus tips serve no purpose other than to more or less randomly reward workers. Since random pay is less valuable than certain pay and firms are less risk averse than workers it makes sense for the firm to take on the risk of tips and instead pay a higher base (again, with the net being in line with what similar workers earn elsewhere).

In short, a job is a package of work characteristics and benefits and it’s better to let firms and workers choose those characteristics and benefits to reach efficient solutions than it is to try to move one characteristic on the incorrect assumption that all other characteristics will then remain the same, to do so is the happy meal fallacy in another guise.