Should Tipping Be Banned? (Ep. 129 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.


RDKelleher

Can I say that as a two-time visitor to the US, tipping is absolutely the most unpleasant, stressful & off-putting aspect of a visit to your country. I'm sure there are international tourists who have avoided visiting the US as they didn't want to face the stress of tipping. Knowing who to tip, what to tip etc. And then sometimes innocently forgetting because anywhere else in the world paying the bill is enough.

What everyone else can't understand is why should some (not all) service jobs be jobs for which the the employer does not pay a proper wage? The "for better service" argument I don't think applies, because visit anywhere else and the service is generally fine.

The one positive aspect I found was that servers are quite happy to split bills in the US (do they get more tips from individuals?) whereas in Australia its common to see "no split bills" written on menus.

Joe J

"do they get more tips from individuals?" I'd say they probably do.
One thing I am seeing in these comments is the assumption hat tips were the employers idea. From my general observations, tipping expand into other areas, it was the opposite, being caused/pushed by employees.
The way I have seen it is, employees try to get extra for the same work, first by putting out some kind of a tip jar to hint to tip them, on top of their regular salary. However, once this become more the norm to the customers, tipping them, management sees they don't need to give raises, so salary in effect over time becomes a smaller part of the servers compensation.
All the people I've ever seen pushing for more or more societal tipping, were servers, not employers, those I see who want it gone are customers and employers.
Now if anyone can show that it was the employers idea, I'd be glad to hear it, especially how the first one convinced employees to work for what customers would tip them when the customers didn't know about the concept yet, or have any idea how much a servers salary was.

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Sunil Mathew

Every invention has a few unspoken side effects viz., invention of automobiles with side effects of pollution... Any invention that has no side effects at all?? Wud be nice to hear this unravelled by you in the form of podcast (I may not have articulated this very well, hope you get what I have expressed here)

Joe J

Actually the car lessened pollution, just a different kind. Picture a city, instead of cars and trucks, picture teams of horses. How picture how much horse shit would be dropped in the street every day.

Caesar Romaine

Here's some thoughts from a person who put himself through college as a fine dining waiter, then worked in finance, then software sales and then owned a restaurant... Why don't you substitute the word "tip" for the words "commission, bonus and contingency"? That's effectively what a tip is - it's a commission for a sale, it is a bonus for a service provided and it is contingent upon the customer's satisfaction.

Why is it OK for the person who sells you real estate, or a car, or a cell phone, or a pair of shoes to receive a commission whether they are nice or surly, smile or are rude but not the server? Why don't you have discretion to withhold commissions to these service employees but you do have it for a waiter? Why is it OK for your banker and financial adviser (broker) to get a commission and yearly bonus and your lawyer to get 33.333% of anything, whether you like them or not, but not OK for the person who sells you food and services your meal?

Wouldn't it be nice, and wouldn't service be improved across the board if EVERYONE was paid at the discretion of the customer? Your doctor made you wait? Your lawyer didn't return your call in a timely manner? Stiff 'em. Car salesman was rude? No tip for him. Snotty sales clerk at the snotty store ignored you? No commission for you! Company puts you on hold and makes you talk to a machine? Tip line left blank on my bill! Your question shouldn't be "should tipping be banned" it should be "why isn't tipping used more?"

I loved your repeated use of the word "we" - as in "should we ban tipping." If you seriously believe tipping should be managed or controlled by some central planners you should consider changing the name of the show to Freako-Keynsian-Economics. Otherwise, let the market sort it out. There are plenty of restaurants that have a no tipping policy. Go there. "WE" don't need any policy and "WE" don't need to ban anything. If enough people prefer non-tipping restaurants, they will go to them. The tipping restaurants will follow suit.

By the way, here's what happens when restaurants go from allowing customers to leave tips to charging a built in "service charge." Waiters go from making decent money with the ability to make more depending on how hard they work and how good the quality of their service, to making a flat hourly wage with minimum wage as the benchmark, while the restaurateur pockets the rest. Trust me, I have seen it happen. (What a concept... you get paid for what you do, not because the government says you need to be paid X amount).

Lastly, here's a news flash; attractive people do better in getting hired at pretty much all jobs. It's just a sad fact of life. In fact, every four years NPR/WNYC will discuss a presidential candidates hair, weight, race, sex and age as much as their qualifications. Perhaps "WE" should start with there.

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John

As usual, people tend to ignore data and think they're the exception. The researcher in the episode showed that tips only had about a 4% correlation to service. The rest was basically race and unknown factors.

If service had *anything* at all to do with tipping, you wouldn't tip a percentage of the bill. I would decide that I think servers should make $X per hour more, and add that to however long I think they spent on my table, and it would be the same $X at Denny's or some 5 star restaurant.

None of your examples of commission were at all similar to tipping. Commissions exist to encourage sales, and commission is based on sales, not some out of the goodness of their heart extra money the customer feels like adding to their bill. It comes out of the cost of the sale. THAT would make sense at restaurants.

Tipping is annoying for the same reason I don't want to haggle for each individual item in my cart at the grocery store. You tell me what it costs and I'll decide to buy it or not. Done, simple. It's the job of the store/sales person/restaurant owner to decide what things cost, and mine to decide if it's worth it or if I want to come back.

The defense of tipping always comes from those that think they're the exception to the rule that tipping is arbitrary and discriminatory. If your final point in defense of tipping is that there is discrimination elsewhere and therefore it's ok, well, that's a pretty weak argument. Where possible we make laws to reduce discrimination because that is not a desired outcome of market forces.

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Caesar Romaine

John, you clearly have neither earned nor paid a commissions. Commissions exist to shift the cost of labor to a measurable transaction. Why pay a shoe salesman $20/hr to stand around? You pay him $8/hr (because the law says you have to), and 10% commissions on anything he sells. He makes a couple hundred thousand a year - he's happy, you're happy (except for the $8/hr the gov't forces you to pay). I have worked jobs where I receive zero pay - 100% of my pay came from commissions. Yes, the incentive to sell more to earn a higher commission encourages sales - sell two pair of shoes rather than just one... But then again, that's exactly what tipped employees do - upsell. "What kind of vodka do you want in your vodka tonic? How about Stoli? Should I make that a double?" Waiters, bar tenders, etc know how to do the math; the higher the check, the higher the tip. The analogy works.

To your point on rejecting the data, we didn't actually *see* the data. We heard the report on the data... meaning we didn't see it raw. We heard it scrubbed, tweaked and massaged to fit the position. That's frequently what data is for - to justify a position, not to find facts. Just think about it. The survey question reads: You tip white servers more. a) always, white employees deserve more b) sometimes, i really don't like blacks and hispanics c) no, i am fair and race doesn't enter into my tip calculations. What do you think most people are going to chose? The survey reads: 98% of survey respondents don't tip based on race. Ok, it's a hyperbole but don't believe everything you read/hear because someone says there's "data" behind it.

The comment about humans recognizing attractive people and gravitating toward them is not an issue of discrimination. It's an issue of human nature. Our world is full of examples of attractive people being preferred over less attractive people. It's not right. It's not necessarily wrong. It just is what it is... you can't force people to not follow instinct. The analogy to the presidential candidate illustrates that point - even venerable news organizations can be distracted by they physical qualities of a candidate. But physical qualities can't be measured as a data point on a spread sheet. Attractiveness, like good service, is a subjective quality.

If you don't like tipping, feel like it's "haggling" or can't figure out the math... don't go to a place where you have to tip. Fast food restaurants exist to fill this need. Our markets are efficient; everyone winds up where they belong.

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pjk

I have a question about the study of squatting and its effect on tip average. As presented in the podcast, it seems the study was done in a setting where the waiter squatted at some tables and did not squat at others. I assume this means that those patrons who did not get the extra attention of a squat could observe others receiving this attention. If that was the case, isn't it possible that the lower tips were actually somewhat punitive, rather than the larger tips being rewarded?

To me this possibility suggests that consistency of server behavior might be the control factor, or at least a contributing factor, that affects how effective any specific behavior might be in influencing tips.

Jolene

It's incredibly difficult to account for so many factors with regards to tipping in a regular restaurant. Regulars and locals, expensive dishes and folks who just get appetizers...hard to quantify.

However...I think I can present you with a controlled situation where your results can be more accurately measured - Medieval Times.

Everyone basically gets the same meal, unless previously arranged (vegetarian/kosher), the same service, the same seating, same approximate price (there are always add-ons), same length of meal, same entertainment. The servers are not allowed to ask for tips, but can leave tip trays in the hopes that you will be generous. Most people think the gratuity is included. It isn't. And being a regular there means maybe coming once every six months.

When I worked there, one serving "wench" ALWAYS did better than everyone else, and yes, we compared tips at the end of the night, and she said it was because she was a total bitch to her guests.

It's a highly controlled food service environment. It would be interesting to see if your theories hold up there. I'm sure the staff would jump at the chance to be mean...I mean "aloof"...to the customers!

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Daniel Adams

As an Australian I've found tipping to be an interesting custom when travelling. In Australia, relative to the US, tipping is almost non-existent; wait staff in high end bars and restaurants may receive a few (often as a showing of status by the tipper), and cab drivers often get told to "keep the change" (because who wants to sit there while a guy fishes around for coins in his pocket). Really outside of those scenarios, you don't see it. We have high minimum wages (about $15.70 USD) so its not a necessity for people in service industries. While at Uni, Ive worked as a bartender, waiter and croupier. I, along with my colleagues, would receive the very occasional tip (usually from American tourists, so thank you) and they were very much treated as a extra. The casino banned tipping the staff (hell those are chips that aren't getting put back over the table if they end up in the staff's pocket), but we were very well paid by the casino (p.s. its hard turning down $100's+ if someone has had a big win and is feeling very generous).

I meant to write this story the first time this podcast aired, but life got in the way. Christmas 2012, my sister, myself, and our respective partners, took a family holiday to New York. Everywhere we went, everyone was very nice and incredibly polite. Maybe it was "christmas spirit", or that we were clearly not locals, or that we just saw a more sanitised touristy version of New York (possibly all three); but we were shocked, particularly, considering New York's reputation. We joked about about how "If these were meant to be the short tempered, rude Americans, what's everyone else like?" It made me acutely aware of the declining manners in Australia (people here are nice, but not necessarily polite).

After dinner one evening, my sister was complaining about the tipping system. She hated the math and the theories (twice the added-on tax and then round up...right? maybe?). She complained "Why don't they just pay them more, include the sales tax and additional cost in the final ticket price, so I know exactly how much each transaction is going to cost? The menu says $20... great. Here's two ten's, have a great evening." Much of which I agreed with, but being it was my big sister and we've always argued for sport, I leapt to the defence of the tipping system. "What about the incredible service we've received everywhere? Isn't it better than what we get at home or in the UK (where she had been living)?" "Yes"
"Do you think it would be that good if the staff didn't at least feel incentivised by tipping to give excellent service (even if that believe is baseless), rather than just decent service for a flat wage like in Australia?" "Probably not.”

Now on a roll, and based purely on our experience of that holiday, I began to theorise on the fly (AKA BS’ing), that tipping, as an unexpected consequence, could have play a roll in maintaining manners in a society. That in the US, Server A (incentivised by the prospect of a tip) may demonstrate incredible manners to Customer A and B. Customer A and B then unconsciously mirror that behaviour back to Server A. Customer A and B, then have similar experiences from Server B and C. Customers A and B then, having had these incentivised polite interactions, maintain a higher level of politeness when they interact with each other. In Australia, being very polite doesn't pay, so it doesn't always happen, or nothing gets that ball rolling, so it slips over time. This, of course, could be eggnog and brandy inspired BS or the rose coloured glasses of a tourist but it was an observation from a foreigner in a tipping environment.

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John

Hispanic or Latin is not a race nor an ethnic group.

Rob Luciano

It would take an act of Congress to begin to change tipping culture. Tipping is needed because restaurant industry has minimum wage of $2.13/hour. There is a TEDx by Saru Jayaraman on this subject. Eye-opening.

http://www.tedxmanhattan.org/speakers/2014-speakers/saru-jayaraman/