The Economist - USA (2022-01-15)

50 International TheEconomistJanuary15th 2022

taurant tips are generally not expected.

In  India  and  Africa,  where  the  gap  be­

tween the prosperous middle class and the

poor is often huge, tips are most certainly

expected.  Some  academics  have  tried  to

see whether a stronger tipping culture cor­

relates  to  measurable  psychological  traits

in  different  cultural  settings.  One  study

across 30 countries suggested that tipping

was  more  common  in  societies  where  in­

equality was rife and where the guilty feel­

ings of the well­off are more acute. In some

settings the onus is plainly on the custom­

ers to be more generous, thanks to an on­

line  ratings  system  whereby  they  are

judged by the server. For instance in Doha,

the  Qatari  capital,  users  of  ride­hailing

apps fear that without providing a cash tip

their  customer  rating  will  fall,  making  it

harder for them to catch a cab in future.

The  most  obvious  economic  justifica­

tion  for  tipping  is  that  it  encourages  the

server  to  perform  better.  But  the  logic  of

the  tip  as  an  incentive  is  far  from  solid.

Most customers in restaurants are not reg­

ulars. A one­time customer will not benefit

in  future  by  leaving  a  tip  at  the  end  of  a

meal.  But  even  repeat  customers  do  not

seem to use tip rates to reward or to punish

the  server.  Mr  Azar  says  that  if  they  did,

their tips would more closely rise or fall ac­

cording to the quality of service than with

more  casual  diners.  But  he  could  find  no

such  evidence.  More  strikingly,  service

quality  in  countries  such  as  Japan  and

South Korea, where tipping is exceedingly

rare, is not noticeably inferior to service in

America or Europe.

If tips operated as incentives, one might

expect them to be more common in profes­

sions where the customer repeatedly inter­

acts  with  the  provider.  But  that  does  not

seem to be the case either, since a wealth of

professions, such as dental hygienists, car

mechanics  or  vets,  entirely  lack  a  culture

of tipping. In Mr Azar’s survey, only 14% of

Americans  said  they  tipped  to  avoid  poor

service in future.

One  study  finds  that  quality  of  service

explains a variation of no more than 5% in

the size of the tip. In a study of rides using

Uber,  where  only  15%  of  trips  are  tipped,

the  passenger’s  characteristics  proved

three times more relevant than those of the

driver when explaining the size of the tip. 

A boss’s scam?

Tipping  quite  often  benefits  the  restaura­

teur  or  business  as  much  as—sometimes

even  more  than—the  recipient  of  the  tip.

Having  enticed  a  customer  with  low  up­

front prices, a tip is then extracted later—

and sometimes doesn’t even go entirely to

the  supposed  recipient.  Recently  online

platforms like Twitter, Facebook and You­

Tube have sought to keep the best talent on

their  own  platforms  by  letting  their  star

“creators”  accept  tips,  with  the  company

sometimeskeepinga sliceforitself.Order

a coffeeora bageltotakeawayinWashing­

tonorNewYork,andnowadaystheserver

isquitelikelytoswiveltheirtabletaround,

askingon­screenifyouwouldliketoleave

a tip.Manyfindit awkwardtorefuse.

Tippingalso passes a chunk of risk

frommanagerstoservers,especiallywhen

between20%and60%ofa waiter’sincome

maybeintips,asisoftenthecaseinAmer­

ica.Ifbusinessisbooming,bothmanage­

mentandtheserversbenefit,becausetips

aremoreplentiful.Whenbusinessisslack,

servers’ incomes fall along withoverall

revenue. Thedegreeofrisk­sharingvaries

bycountry.InBritainandGermany,forex­

ample,tipsdonotcounttowardsthemini­

mum wage. But in France and parts of

America that have a “tipped minimum

wage”,employeesineffectlosethefirst

tipstheyearntotheiremployer,whocan

countthemaspartoftheminimum.An­

otherargumentinfavouroftippingisthat

customersarebetteratobservingthequal­

ityofservicethanmanagersare,sothey

knowwhoshouldgetanextrareward.

Tippingisalsoa waytoavoidtax—to

thebenefitofbothbossesandservers.In

Britain the standard “optional” service

chargeescapesthe20%value­addedtax

appliedtotherestofthemeal.Tipsincash

areprettyeasytohidefromthetaxman.In

2018 America’sInternalRevenue Service

estimatedthataround10%ofpersonalin­

come­taxunderreportingwasbecauseem­

ployees did not report income in tips,

thoughthishasbecomeharderastipsare

moreoftenputontocreditcards.

Sowhoreallybenefits?Perceptionoften

mattersmorethanreality.Aslongasserv­

ersthinktheirtipswilldipiftheirperfor­

manceispoor,themanagementwillreck­

ontheyhavethedesiredeffect.A surveyof

1,189serversfoundthathalfsaidthatthe

qualityoftheirservicehada largeorvery

largeeffectonthesize oftheirtips.At­

temptstoreplacetippingwithotherways

ofpricingcan worsencustomerratings.

ThishappenedafterCarnivalCruiseLine,

basedinFlorida,scrappedtippingontheir

voyagesintheearly2000sinfavourofa

servicecharge.A studybyMrLynnandZa­

charyBrewsterofWayneStateUniversity

foundthesameeffectinrestaurants,par­

ticularlyincheaperestablishments.They

suggestedthatbetterwagesorbettertrain­

ingweremorelikelytoimproveservice,

especiallyinfancierrestaurants.

Hardtocrack

Notthatthepracticeisuniversallyloved.

Ineffect,tippingreserves20%ofa restau­

rant’s revenue for servers who interact

withcustomers.Thiscan frustrateposh

restaurateurs in places like Washington

andNewYork,whereitisillegalfortipsto

besharedwithkitchenstaff, therebydi­

vertingrewardsawayfromthem.In 2015

Danny Meyer, chief executive ofUnion

Square HospitalityGroup, triedto ditch

tipping in his restaurants on these

grounds.Butafter apainful increasein

staffturnover,hedecidedtobringbacktip­

ping.Withoutithereckonedhecouldnot

setattractivepricesandkeepcompetitive

wagesforhiswaiters.Hestruggledtoman­

agea systemwherebycustomersfeltob­

ligedtosay“thankyou”merelybyvoice—

butnotwiththeirwallets.

Criticssaytippingisanunfairpractice

thatleavesworkersfawningforfavours,

confusescustomers aboutthereal price

theycanexpecttopay,andencouragestax

evasion.Itschampionssayit isanefficient

wayto align incentivesbetween bosses

andworkers,anda healthywayforthecus­

tomertoexpressgratitude.

For all its drawbacks, Americansare

keenesttoretainthepractice:ina survey

60%ofthemsaidtheypreferredtippingto

amodestservicecharge.Customersmay

notberightthattippingimprovesservice.

Perhapstheyliketofeel,astheystepout

fora meal,thattheyareincontrol.Andit

maycomfortserverstothink,howeverer­

roneously,thatiftheyperformbetterthey

willbemorehandsomelyrewarded.n

Why tip?

Reasons given for largesse, % responding*

Source:OferAzer,Ben-Gurion

University, 2010

*Respondents could

give multiple answers

1

Waitermay yell

atmeif no tip

Getpoorfuture

serviceif no tip

Avoidembarrassment

Avoidfeeling guilty

Waitersdepend on tips

Showgratitude

It’sa social norm

806040200

United States Israel

Ride and prejudice

Change in expected tip* for Uber drivers

2017, by age of driver and sex, $

Source:JohnA.List,Universityof Chicago, and others

*Comparedwithmaledriveraged 21-25 with male passenger;

includespassengerswhodonot tip at all

2

0.08

0.04

0

-0.04

-0.08

21-25 26-   4   5-44 45-54 55-64 65+

Female driver, female passenger

Female driver, male passenger

Male driver, female passenger

Male driver, male passenger