Wednesday, November 29, 2006

Why do we tip?

Some time ago I logged a comment on David Friedman's economics blog in response to a post entitled, "Why do we tip?" It was meant to be a quick reaction to what I thought was a curious trail of other comments, but I ended up writing much more than I'd intended.

Periodically since then--especially when I'm out at a restaurant and about to calculate the tip--I think about that thread, and it still disturbs me . . . primarily, I think, because of the apparent lack of thoughtfulness and the extreme self-righteousness that most people display when they discuss the issue of tipping. And, perhaps most disturbing of all, this entire discussion occured on an economics-focused blog, where you would expect the author and his regular readers to approach things in a rational, businesslike way and look at all of the incentives involved in the exchange.

And so I'm going to recycle a lot of my original argument here in an attempt to get to the bottom of this phenomenon once and for all. Why, ultimately, do we tip waiters in restaurants?

In almost every case people trying to answer this question look at the incentives from only a single angle: that of the restaurant patron. Why does the customer tip? What's in it for him or her? To insure prompt service, of course. This line of reasoning invariably leads to people puffing out their chests and huffing about the level of service they expect in a particular type of restaurant and how much it is worth for someone to bring them an iced tea as opposed to filling it themselves from an urn on the counter. And this gets annoying really fast, especially to anyone who realizes that the average diner has as little insight into all the other things going on in a waiter's or waitress's job than the average waiter has into what their customers have going on in their personal life outside the walls of the restaurant.

The incentive for a customer to tip is one factor, but it's not the really important one. In one sense, we still have the seemingly-archaic practice of tipping because it's good for the restaurant owner's bottom line. Why, after all, are grocery cashiers paid by the hour, teachers on a straight salary, lawyers on salary with huge bonuses, and salespeople on commission? Over time, these compensation schemes have proven to be the most effective way for a businessperson to get the desired behavior out of a particular type of employee. In the case of waiters, a tip-based compensation model helps insulate the owner from taking a bath on a slow night--if not enough customers come in the door, the wait staff takes home a smaller amount of money. Waiting tables is very much a customer-facing sales position, and any waiter who has figured out how to upsell tables with appetizers and drink specials understands that tipping is essentially a slightly-unstable commission system.

Tipping works out just fine for the restaurant owners. If it didn't, and moving from a tip-based scheme to a flat hourly or salaried package would actually ensure better performance from the staff and higher returns for the restaurant from all the pleased repeat customers, you can bet your sweet bippy you'd see more and more restaurants posting "Please, no tipping" signs and paying their waiters a regular wage (like most grocery stores now do for bagboys).

But, the real key lies in the incentives for waiters or waitresses to work for tips. The federal minimum wage laws provide for a "tip offset", which allows a restaurant to pay its employees a greatly-reduced minimum wage of $2.13 per hour, provided that when they add in tips a waiter or waitress's total hourly take exceeds the minimum wage. From a practical standpoint, since a waiter at even a mid-priced restaurant can take home 30 or 40 bucks for a 4-hour shift, this means that waiters are working primarily for the tips.

Ultimately, it's the waiter's total take-home--and the opportunity cost--that matters. If the total wages and tips combined did not exceed what that person could reasonably expect to make in another line of work, then that person would likely move on to other jobs. From the restaurant owner's point of view, if the diners all suddenly turned into my step-father-in-law and started tipping only 3% on their checks, then likely many of the restaurant's servers would quit, and the owner would have to raise the hourly pay to attract and keep enough workers to run the business, which means labor costs would go up, and in the end the owner would have to raise the food prices to compensate--which means the diners would wind up paying for the service in one way or another.

Essentially, the waiter labor market is at an equilibrium where, on average, the amount of money the restaurant patron is willing to pay (whether out of conformity or guilt or pride or sympathy or whatever) is sufficient to supplement the tiny hourly wage paid by restaurant owners and attract enough people to serve as waiters.

So why do we tip? A commenter named Justin from David Friedman's site noticed an interesting fact about the tip jar on the counter of the coffee shop where he worked: "people tip more when there is a good deal of money already in the jar, and they tend not to tip much when it's empty." And why is that? The tip jar is a signal of the proper social behavior: Am I supposed to tip these guys for bringing me coffee or not--oh, look, a bunch of other people have tipped them, so that must be the right thing to do. I feel the exact same way at Andolini's Pizza, which has an "Instant Karma" jar on the counter that always prompts me to leave a tip even though there's not really any waitress service, just because I'm worried the people who work there will think I'm a cheapskate if I don't.

We tip because everyone else does. Would it make a difference if we all decided overnight that it's a silly convention and we weren't going to follow it anymore? I've heard a lot of ludicrously convoluted rationalizations for how people arrive at a tip amount other than the standard 15% (like timing out how long it takes a bartender to fill and deliver a beer glass and backing into the tip from a reasonable hourly wage), but amid all the seemingly-relevant detail these explanations universally ignore the fact that the customer and the waiter aren't negotiating before the meal and agreeing on a mutually acceptable price. Chest-Swelling Consumer Boy may think all a waiter's effort in taking orders, delivering plates, and filling drinks is worth only 2 bucks per person per meal, but the waiter may have a different opinion, especially if he is going to serve only 20 customers in a four-hour shift.

The restaurant tipping system essentially runs like some of the quaint vegetable stands I've run across in New England, where the proprietor lays out the vegetables, puts an "honor system" jar on the counter, and leaves, allowing customers to deposit whatever amount they see fit. Whether one particular shopper puts in a nickel or a twenty-dollar bill for a pumpkin doesn't really matter; but, if in aggregrate all the vegetables disappear and there's practically no money left in the jar, you can bet the farmer isn't going to bother to keep the stand running for very long.

We tip because everyone else does, and because it works out okay for both the restaurant owner and the waiter. It's silly and nerve wracking and, when trying to calculate the tip on a dinner for six after one too many glasses of wine, prone to grievous errors. But it's not going anywhere any time soon.


beyonce said...

no that is totaly not true!
how many people they studied the code of good behavioural and rules how to cat to do and not to do in society?
well let me tell u that i am one who luckly did have those clases!
in there there is a chapter who sais that is european standard for the tip for waiters,cab drivers,hair stylists,and barbers.the tip it should be between 5-20% of the bill value.of course you have to consider the class of the place as well.why?
it is a moral obligation to show your satifaction after the service was delivered to you,there is no shame to live just 20 this way the person who served you they will realise that continuing this way he or she will loose the customers or worst theyr job!
still,europe is completly against tips moraly speaking!some of authors of high class behavioural and society good conduct considder that is should be more fair to addopt the included servicies politics.if you realy are against some of this rules and it is not stated on the bill,the education and good maners will tell you not to embarassed your self looking skinflint and leave 20 pence.
but 1.think of the person who are not so well paid and there are there on their feet sometimes more than 12 hours,still kind and smiling ,giving you the satisfaction of giving orders, or can always the owner if the waiter servicies are included in the bill and STILL if you are so fancy to go to restaurant do not embarres your self by collecting everey liitle change .it is sign of bad edducation.
and no offence but this tip are honestly worked money,doing not an easy job!as we all know how the most customers are esspecilay the whelty ones! proving that you are not snob and skined is sign of hight education! so now look deep inside!did this answered your question?

beyonce said...

if u need further bibliografy i would reccommande for a start:the code of good manners today!by aurelia marinescu/published by humanitas edditure or jane austen's guide to good manners or a pinch of posh by mr.and mrs.laurence llewelyn -bowen or best start with mr.jones rules for the modern man by dylan!i am not trying to offend,i am only tryng to reveal how much we do miss in life by ignorring, judging without a foundamental reason or simply because we do not know!that is why we ask!pardon my misspelling!

Sargent said...

Hey Beyonce,

I am no child to need your approval or disapproval for my service, as it is always above excellent, nevertheless my customers decide that $2 per person is adequate to afford even the lowest standard of living that you yourself are obviously accustomed to living. Any relatively intelligent human being realizes that they have the obligation to pay for the services rendered, as they themselves would expect to receive for the same level of service provided despite inadequacies in the kitchen, as the server/waiter involved is merely a go between in most instances where problems occur. Granted there are many children out there serving who have no clue as to what is actually expected of their work performance, you still cannot treat any grown adult as if they were a child still living off of their parents allowances, with everything paid for for them.

I pay my own bills, just as you are supposed to, however, my ability to afford those bills, depends on whether or not you feel that I deserve your 20 cents for my labour, regardless of how spread out I become due to store mismanagement. We are not Eu. This is the US, where men and women expect the American people to hold themselves to higher morales and standards than Europeans, we allow you to decide how much our service is worth to you, and pay us accordingly... Even if everything was wrong, please don't forget how much that server had to book it to keep up with demand, whilst stuck in between you and your food, an aggravatingly daring position to say the least.

Personally, based on my own expertise and standard of excellence that I choose to uphold for myself, anything below 15% is unwarranted in any sitting, despite whatever troubles may arise (unless they involve you leaving due to lacking service), and anything less than 25% means something was still wrong with your experience in my restaurant, and as a general rule of thumb, I always tip 35% - 55% or more to my waiters, just to ensure that they are not too downtrodden by worthless, fat, filthy, lazy, greedy Americans (excluding many upstanding individuals who know themselves to be).

Here are my exact sentiments: When you tip your waiter/waitress think of it this way;

This person deserves (based on his/her service, professionalism, salesmanship, conduct, appearance, posture, bearing, knowledge of products/services provided by restaurant, mainly and above all Customer Service) to be able to afford to be dressed and adorned in what manner, driving what type of vehicle, living in what type of neighborhood, etc... This person deserves certain things that it is my just duty (as his/her primary means of acquiring wages) to provide in my tip which I have based on these things.

Thus your meager 5 - 20% of what you spend on the food (which is typically worth much less than the services being provided by this server) does not cut it. Your logic is extremely flawed if you think that you yourself could afford to live any lifestyle based on what little you feel obligated to shell out.

And if you'd like a book to read, try your local library for any basic English books, you could also attempt to learn how the "spellcheck" feature on your computer works, or above all, you could simply stop being so lazy.

Anonymous said...

Sorry, but the fact remains that you have a choice to work in the service industry. No one put a gun to your head and forced you to work as a waiter. If you don't like the tips that some people give, get the hell out of the restaurant and stop bitching. End of story.

Perkalicious said...

and when all the servers "get the hell out of the restaurant and stop bitching" we end up at this paragraph again:

"...If the diners all suddenly turned into my step-father-in-law and started tipping only 3% on their checks, then likely many of the restaurant's servers would quit, and the owner would have to raise the hourly pay to attract and keep enough workers to run the business, which means labor costs would go up, and in the end the owner would have to raise the food prices to compensate--which means the diners would wind up paying for the service in one way or another."

so would you rather have the cost of your food be at *your* discretion or would you rather have your tip automatically included??

Anonymous said...

Tipping is an arbitrary social convention that should be abolished forthwith.

Join the Revolution.

John said...

If you don't want to pay for someone to bring you water, bread, beverage choice, 1-4 courses, extra plates and utensils, condiments... then don't. If you don't want someone to then take those dirty glasses, utensils, and plates away so that you don't have to wash them or clean your table then stay home and cook a meal. Or go to a fast-food style restaurant.

However, if you don't feel like cooking that night, and you don't feel like cleaning after yourself, and you want to be able to sit for an hour or two and have everything you ask for brought to you, then pay for it.

Don't ignore that someone is doing a lot of things to make you comfortable. Acknowledge what they're doing. Acknowledge that in the U.S. you are paying the majority of that person's wages.

If you disagree with the current system in place ($2.13 hourly plus tips) then work to change it.

If you think servers make too much money, then work to establish a higher minimum wage so that it is no longer the customer's obligation to pay a server's wages. Push legislators to establish a standard server wage that most will accept.

Go through the proper channels. Do not express your disagreement by simply not paying an appropriate percentage for the services rendered.

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Anonymous said...

Since we tip waiters for their services then shouldn't we tip everyone? Waiters are paid at least minimum wage which here in CA is $8 an hr. I worked in a convalescent home and I did exactly everything a waiter does plus a great deal more did I evet get tipped? No why? Because it was my job!!! And earning less than a dollar more doesn't justify it.

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