Should Tipping Be Banned? A Freakonomics Radio Rebroadcast

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(Photo: Aaron Stidwell)

This week’s podcast is a rebroadcast of our episode called “Should Tipping Be Banned?” (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

As we all know, the practice of tipping can be awkward, random, and confusing. This episode tries to offer some clarity. At its center is Cornell professor Michael Lynn, who has written 51 academic papers on tipping.

The practice of tipping is one of the most irrational, un-economic behaviors we engage in. It’s not in our economic best-interest to tip; essentially we do it because it’s a social norm — a nicety. In this episode of Freakonomics Radio, Stephen Dubner looks at why we tip, what kinds of things can nudge tips upward, and what’s wrong with tipping overall. Research shows that African American waiters make less in tips than people of other races, so tipping is a discriminatory practice. In the end, we wonder whether or not the practice of tipping should be eliminated altogether.

Tim Skarratt

The original meaning of the form TIP is "To Ensure Promptness" and was originally paid at the beginning of a meal or service. It was given to the maitre d or the table staff to ensure a good table and good service from that moment onwards. The more you gave in a tip the better service you were sure to receive.

The act of paying a tip after the service as is the norm today, and is a great way of showing your gratitude for those who provide above standard service (standard service is your basic wage and your job). The area I have a problem with is the way in which restaurants place a 12.5% tip or service charge onto your bill automatically, therefore removing your ability to reward someones expectational service or not provide it in the case where an individual provided adequate or sub standard service. In fact you can end up looking "cheap" or "rude" if asked to be taken off.

What is worse is that the larger chains take 40% of this tip/service charge away from the employees and put it into their own pocket. Therefore reducing the point of the tip, the set price is for the meal and all that goes into its preparation, the tip is exclusively for the wait staff or those who you feel added to your experience.



It isn't an acronym.

Your other points are good though.


Interesting episode! I had one thought on it though: How come Michael Lynn chose to compare different groups (blacks, Hispanics and Asians) to whites? Why not compare Hispanics to blacks, for example?

DW Horton

What about something like this... at the end of your meal, you're given a number of beans based on, say, 20% of the value of the meal. The number of beans you leave at the table is your tip, and the server can cash them in at the end of the night for cash or some other benefit.
The server is directly compensated for good service (or whatever else people tip for), the restaurant owner is able to measure which servers are performing well or poorly, and the guest pays the menu price for the meal. Like my grandpa used to say, "what you can measure, you can manage".


Don Donaldson

Oh my goodness... I think you got wrapped around the axle on this one. Wooly, is right Dubner.

I think the problem, among other things, is: the purpose of tipping.
Let me also say that I think, tipping hurts every body in the restaurant, customers, owners, workers.

Lets start with restaurants.
I'll also bet that if you could "mine the data" you would find that tipping a % of the bill didn't exist at the beginning of the development of restaurants. Restaurant workers came out of the Aristocrats households after the French Revolution and were professional. In that they were trained. Restauranteurs included the cost of employing these people in the bill like they did while working for the royalty before. Chefs submitted a bill to the house's accountant, it included all costs to run the kitchen staff and the Barron or Marquis, or whatever the title was, paid.

This still goes on in restaurants in France. At least when I was there last time. It has been a while.
It is a standardized service and it is charged as such.
Coffee= 2 Franc
Croissant=2 franc
service=2 franc
tax=2 franc

This is, as I see it, the best scenario. When you have a professional staff that provides a standard service.

You are not allowed to pay what you feel like for your food. If its not good you send it back. If you don't like the dish you pay for it and don't order it again on return visits or ask for another menu item. Why should you pay what you feel for the other cost, service? The answer it varies wildly because there is no professional server position in the restaurant industry.

I'll also bet that the custom of tipping a % of the bill started when the class of professional server started to disappear and it has.
I think when you go to an average restaurant nowadays in America you, neither will be served by a pro, nor will your food be cooked by one. They may do restaurant work for a living but not be pros. Yes there are lots of exceptions but...on average I think this is true.
All of the tricks that were talked about in the podcast, pros don't need to do that.

Restaurant owners... Most restaurants need to operate on the edge of chaos to be profitable. Many restaurants are built, staffed, financed and operated not to provide the best of anything when seated to capacity. To do so would be super expensive. They have too many seats to too little equipment and staff. Managers are reluctant to make customers wait at the door. They feel that people might leave while waiting at the door too long. They would rather have them wait at a table or bar with an open check with drinks on it, this influences the customer to not leave.
So managers over staff and drive up their labor cost. To counter this, server's wages have been developed or evolved. The agreement is that the restaurant will pay sub minimum wage and pay the waiter in a check, if tips don't equal $7.50/hr. Don't forget the bus staff are tipped by the servers.
So restaurant owners and managers when they can, almost, over load the kitchen. When this goes bad is when they over load. On the edge of "lack of control" raises total average $ that the servers make because they make money on a % of the check. But holds down the quality of service and the % average. Based on the floating % assigned by the customer model.

Where did % come from? Was back when I was a young cook. 15% was standard. as of 2006 18% was considered standard by a lot of customers. Ask a server and 20-25% is or should be the norm.

Probably, owners and managers and servers did some math and figured that 15% was about the average $ amount that would bring up the total $ amount that servers made so owners didn't have to supplement servers checks, who made less that the required amount of tip to make minimum wage. This established itself over the years by suggestion, maybe promotion. People took the advice and there it is. Minimum wage went up, 15% tip became the standard and server could make a living.
Until it didn't. Then servers started to suggest 20%. I think this started about 2000.

Here's where the edge of chaos comes in.

The balance of almost too busy, almost under staffed: to providing acceptable quality of food, and acceptable service is the best place for everybody based on a method of compensation for servers that is sort of subjective.

If a service fee were charged as an item on the bill, paid by the customer to cover the cost of employing the server and busser a couple of things could happen. The cost of providing better service would be covered. The restaurant could require a higher skilled worker and raise the level of service and maybe the menu prices. They could hire better cooks serve better food, and be more profitable.
Gratuity could be restored to it's intended purpose. If the customer wanted to leave an additional tip for exceptional service that's fine bit not required.

Compare tipping in a restaurant to lets say a doorman. According to an article in New York Magazine a union doorman makes $32,000 a year add in a $5000 gratuity.
If a server average 20% over the year. That's not so bad, at least compared to NYC doormen.

Me as a Chef would of course choose my model. I'm interested in providing a standard.
Owners don't have that luxury . They need to pay the bills and make as much money as possible, now. Most cant place that bet.

Jon Bon Jovi's Soul Foundation runs a restaurant, Soul Kitchen in Red Bank NJ, that is pay what you want or can. No for profit restaurant can take that chance without some sort of backing. I don't know how Soul Kitchen does. It is a non profit.

I wont argue about the origins of tipping. That is legend now. There is probably no single true story.

Currently, I don't think there is a problem problem with a charge for a gratuity for parties of X or more when they are spontaneous no reservations.
It does incur a cost to everyone in the restaurant to remove one server from the floor in that maybe there will be too great of a work load on other servers to serve the other customers well.

Also Customers break the % for tip compact when their Parties of 20 get expensive.
Why should they tip XX% for 20 meals eaten out separately and -xx% when eaten all at once.
The larger the bill the smaller the %. This is fact.

The above is my opinion is based on 2o years working in restaurants and seeing this go on.



Why the thumbs down? let me know what you think. what do you disagree with?


Restaurant serving is also a sales job. I work part-time as a server in addition to my full-time teaching job. It is difficult work.
I'll admit that I would be less likely to serve as my part-time job if percentage tips were taken away and instead I was paid a higher wage. I am motivated by wage incentives. The harder I work, the more tables I serve, the greater sales I make, the higher my take-home at the end of the night. (Versus my teaching job where the harder I work the harder I work and the pay stays exactly the same. Believe me; it's a hard to rationalize.)
If I was paid a consistent hourly wage with the restaurant prices being raised to compensate, then I would be less likely to push the sale of additional beverages or salads/desserts in addition to entrees, as these would require more visits to the table without any additional compensation. I would also slow the turn of my tables by slowing down the food service or check delivery, because I would have no incentive of getting the next table (and doing more work).
If percent tips were taken away, then other incentives would have to be put in place by the employer to ensure higher sales.
The questions was posed: would it be detrimental to an employer to do away with tipping? Yes. I anticipate that restaurant sales would decline.


Oliver H

I disagree. You might make more on any given evening, but the people who feel pushed to buy more might be disinclined to come back, costing the restaurant in the long run.
You DO have an incentive to serve promptly: The welfare of the restaurant which employs you. If it becomes known for poor service and has to shut down, there goes your job right with it.

And that's supposing you do not have any shred of pride in you. If your job is such a chore for you, may I suggest you look for something you actually ENJOY doing?

There's countless countries out there in which tipping is reserved for truly exceptional service - or simply restricted to rounding up the bill.


What percentage of the $40 billion per year in tips gets reported for income tax purposes?

leigh ratcliffe

I just listened to this podcast (again) and again was wishing you had addressed one issue I see with tipping. Just after I graduated college I worked in the SCUBA and travel industries for a few years and essentially lived off of my tips. What I noticed is how little anyone in these industries is actually paid by their employer. Even when I was a divemaster, purser and crew member on board a relatively large ship I made most of my money off of tips. A divemaster alone is a pretty highly trained individual responsible for your life when you are underwater and I was surprised at how little the average salary is for this occupation. So my question is: when an employer knows their employees will make money off of tips do they pay them less? And if so, the probable correlation between tip size and what you look like really starts to matter, doesn't it?


First question: Of course, owners will always look to cut labor costs. Labor drives up costs. if you took what you made as a diver and applied it to what the owners need to charge for the service it would drive up the cost to the customer and probably drive down sales.
Employees and employers agree on the model of tipping. Owners will will ALWAYS lower labor costs and people who choose serving are willing to take that gamble.
Second: unfortunately looks matter to many people.

Elizabeth P.

I wish that somewhere in this episode the fact that servers in the restaurant industry are legally paid less than the minimum wage. Tips increase their wages to the degree that servers can earn a living wage doing a demanding job. Without tipping, would all restaurant owners be willing to increase prices and return all of that increase over to the employees who used to earn tips? I doubt that is how it would play out.


Like most Australians coming to the US, I find the *requirement* to tip nothing but an endless irritation. Please get rid of it!
Life is really so much easier and altogether more rewarding as a customer when you can actually give a tip *on occasion* when you actually do receive particularly good service.


Great podcast, enjoyed it both times of listening, but for me you missed a big point. Tipping unbalances a situation, allowing employers to get away with paying poor wages or even, I have heard, charging employees for a job where tipping is expected. Why do we let employers get away with this? And if tips are secret between waiters and customers, employers cannot use these data to understand who is doing a good job.


The issue that is not explored in the episode is how tipping (especially in food service) is not correlated with the interests of the employer.

The thing I found ubiquitous among US dining experiences is the rush inherent in the experience. I was often surprised at how soon a meal was over. As an Australian, I am used to dining out being a social experience, one to be enjoyed. One that takes hours, not minutes.

I see tipping as one way of the proprietors' interest of turning over as many customers as possible forcing alignment with the goal of serving as many customers (tables) as possible. In the end, the more tables you can turn over, the more tips you receive. In the end, this has diminished your culture.

This is apart from the, perhaps, more important point that it is an excuse to pay employees less than they deserve, and leave it to the law of the jungle.


Oops! That should have been how the interests *are* correlated. I wish I could edit!

Leonard Reese

I take issue with Magnus Torfason's assessment of correlation between a country's amount of tipping and its corruption. While there is a huge prevalence of both in America; in many, many countries with no tipping culture at all--such as China or Tanzania--corruption is still rampant in government and business. How would this be explained?


Hey Freaks,

I don't have access to reliable wifi or Internet service so I have started downloading podcasts while my connection is good. Is there an economic reason why I can't download podcasts from your site?

Please allow downloads.....