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Any discussion of service should eventually consider the subject of tipping. Is the act of leaving a tip for a service employee a form of tax or is it a moment of altruism? Do you as a buyer of services expect to find a linear relationship between the size of your tip and the amount of service delivered or do you just automatically do the math in your head and write it on the bill?
As a lifelong student at the School of Hard Knocks- College of Food Service I can tell you that it is a subject of much discussion, infinite aggravation and a huge component of overall income earned. Of course, tipping is utilized in many service industries besides food service. Taxicabs, hotels, hairdressers and tour guides come to mind. Since my experience is most with food service, I will confine this discussion to one topic: Why don’t we just eliminate tipping and add the full cost of running the business and paying a living wage to the menu prices?
Tipping is deeply embedded as a cultural thing. Tipping came to the U.S. in the 18th century from Europe and has been a cause of friction ever since. The NY Times published an editorial on 1897 that called tipping the “vilest of imported vices”. By 1915 six U.S. states had abolished tipping as a form of extortion. Stingy tippers can be a considerable source of stress to servers which occasionally leads to an altercation.
In modern times the cultural expectation of tipping leads us as a country to tip to the tune of $40 billion per year to a total food server group of 2.5 million workers. I did that math on that and got an average tip income of $16,000 annually which makes sense based on my experience. In some states where employers are allowed to count tips as part of the minimum wage (tip credit) the tips will substantially exceed the money paid by the employer. In states like Minnesota where I live tip credit is not allowed so that servers are paid a higher minimum wage (currently just under $10 /hour) and collect tips as well so that a good server can easily clear $20 to $25 per hour in combined income. That’s enough to support oneself in reasonable comfort, i.e., a living wage. Menu prices reflect the higher cost. If one traveled from Texas to Minnesota and bought the same meal at an Outback Steakhouse in both places the cost of labor shows up as $1.00 to $2.00 per plate more for the same item.
Should restaurateurs just leave things as they are or should they campaign to eliminate tipping and pay all the staff a living wage? In Manhattan restaurant titan Danny Meyers, owner of Union Square Hospitality Group, has embarked on a mission to do so. Over the past 2 years or so he has converted a bit at a time his 20+ high end restaurants. Meyers is also the creator of Shake Shack and reasons that if Shack can make it work on $5.00 burgers, he should be able to work out the economics on $100 plates of food. Meyers high end restaurants had to increase menu prices by 21% in order to eliminate tipping and pay the service staff what they need to make. So far it seems that Meyers customers have accepted the change and even embrace it. On the other hand, recently national chain Joe’s Crab Shack experimented with eliminating tips in a few of their locations. They found that online service scores decreased dramatically and they scuttled the experiment.
It turns out that expectations have a tremendous influence on overall customer satisfaction and server performance. Research at Cornell has shown that even though tip generosity is poorly correlated with service quality (people seem to tip out of habit and convention) the servers thought the correlation to be strong and therefor behaved as though their income depended on their performance. They worked harder for their customers. Not a bad result.
Additionally, customers as a group were happier with a tipping environment. Customers expect service to be better in a tipping situation and that can bias their perceptions. Most people still believe in the power of incentive.
So which way for the future? Mrs. Chef, who has worked for tips her entire career, is a notorious over tipper. She strongly believes in karma, at least where tips are concerned, and expects that she will reap as she has sown. I have learned just not to look when she is in charge of the tip. I myself am a little stingier, although I almost always leave 15% or better and feel bad about leaving only 10% for really crap service when 0% was earned.
What say you? Would you prefer a “service included” model or do you like things as they are?
(Hat tip to Stephen Dubner at the Freakonomics Podcast for some of the data I quoted here.)