Can We Talk About Tipping?

In their daily update email, the New York Times has a longer discussion piece, followed by links. On Sunday, Lauren Jackson tackled tipping, and how confusing it’s gotten in a post-Covid, app-oriented environment:

“Apps have transformed what was once an in-person exchange into a digital transaction. This depersonalizes the tip and can discourage generous tipping…. [Pre-set tip screens] give power to technology companies to determine the gratuity. The size and placement of a tip button on an app can influence a customer’s selection or make it harder to opt out of a tip. If no tip screen appears, customers are less likely to seek it out.”

Jackson mostly constrains her discussion to delivery services like DoorDash, but the problem is far more pervasive than that, and she touches very briefly on a few of the issues:

“Digital payment platforms are prompting customers to tip in places where tipping didn’t previously exist, like supermarkets, mechanics’ garages and dog kennels. Now, many wonder: Should they tip for snacks at a convenience store? Is it rude to select ‘No tip’ when buying groceries? No one seems to know.”

It’s coercive, she notes, and in many cases a way that companies prey on buyers’ goodwill to extract an additional, completely unearned, service fee. Finally, I’d tack on the fact that service industries themselves are changing and commonly putting some or most of the work on customers, who may do everything from carrying their own food to their tables and bussing them.

Technology is disrupting not just how but what we pay, and has the whole enterprise of tipping teetering near collapse. Perhaps it’s time to say good riddance.

A Little Background

When the topic of tipping comes up, the biggest defenders are generally service workers and their allies. Since service workers are generally poorly paid, tipping is an important part of their salary. It’s an ironic dynamic, though, because the system evolved from a form of noblesse oblige, in which the wealthy ritually kept servers in their place by coercion through tipping. Only the most effective and obsequious service was rewarded with a tip from the master. It issued from Victorian England as a show of hereditary might—and one Americans found distasteful into the early 20th century. The power dynamics of tipping also pointed to the aftermath of America’s great national sin, slavery, where tipping became an even uglier ritual of demonstrating the power imbalance. For a time, egalitarian-minded people wanted nothing to do with it. Several states even passed laws banning the practice, including our neighbors to the north, who did it first in 1909. (Not that it worked. You can’t legislate away broad cultural practices, and the law eventually became laughably unenforceable.)

Prohibition seemed to have been the spark that entrenched tipping—in much the way Covid made us more generous with delivery drivers. Legitimate restaurants and bars hemorrhaged money when they lost liquor sales, so patrons chipped in extra to keep them going. (It may also be the case that people started tipping producers or salespeople who kept the supply of booze flowing, but this was more like a payoff than generosity.)

Another irony: Congress passed the first US minimum wage law as a part of New Deal legislation in 1938, but excluded restaurant servers. Restaurant owners, not required to pay the minimum wage (25 cents in 1938; $5.30 in 2023 dollars), didn’t. In order to rescue servers from poverty, diners began tipping, and we’ve been doing it ever since. Had restaurants been forced to pay workers minimum wage, the impulse to tip might have waned.

Instead, it has expanded. In the past few decades, as wage disparities have gaped to their greatest levels ever, we’ve started tipping other low-wage workers for the same reason. Tipping may have once been a hierarchical arrangement, but it has become structural. Tipping is an entrenched part of the way we pay certain sectors of workers. Any relationship to service quality has largely vanished (though jerks or irritated customers may use not tipping punitively.)

The Poor Reasons We Tip

Let’s start from the premise that workers should earn a living wage, at a bare minimum. If we all agree that workers should be paid properly, then the question becomes simply: by whom? In most of Europe, for example, tipping isn’t obligatory, and when tips are offered, they’re modest compared to the US’s standard 20%. The reason? Servers earn living wages. The American kludge, where buyers pick up a portion of a company’s payroll, isn’t how they do things there. For many Americans, tipping has become such an established habit that it’s hard to imagine any other way of doing things. Among peer nations, we’re the outlier, though.

So if you don’t have to structure a service sector around tipping, why would you? Tips have all kinds of downsides. When you go to a restaurant, many people work to prepare your food and experience. Tipping only addresses the poor wages of front-of-house staff. Maybe servers share tips. Maybe they don’t. And maybe the house steals part of the tips along the way. In any case, it’s a terrible way to make sure people have decent wages. Even among servers, there’s no equity in tipping. Servers at high-end places earn more, and, of course, White workers do, too. No one should be paid according to how they look or who they are—the playing field should be even.

Tipping, finally, isn’t a reliable form of payment. Tips go up and down with the economy, including during inflationary periods like now. So at the moment workers need stable incomes, they see them deflate. Because tipping is purely a custom, nothing is protecting worker wages when customers reduce tipping. And now that we have new technologies that do part of what we were tipping servers to do, as well as adding on costs for services we formerly never tipped, that income stream is less reliable than ever.

Societal Shifts

The issues Lauren Jackson discussed in the NYT have seriously scrambled the tipping equation. We are now asked to tip more often, so money is going places it didn’t before (a friend told me his teenage son, working the cashier at a Burgerville, was raking in $20 an hour in tips). But overall, tipping is down, so less is going to the workers whose paychecks depend on it.

Researchers believe we tip out of social pressure more than anything else. That makes sense, since we all understand that stiffing a server materially lowers their pay. It’s a jerk move and comes with a social penalty. Switching to apps and payment screens has upended that social mechanism. On the one hand, screen payments make us tip more for services we never used to tip, while app purchases, made in privacy, make it easier to secretly lowball the tip. So while my friend’s son is enjoying a windfall, DoorDash drivers are watching their incomes decline.

Finally, all these machines end up diverting tips long before servers ever see them. Some of that money goes to the processing software, and some of it may be snatched by the company—secretly or not. Tipping was once a direct transaction, cash given at the table to the server. The more tech we use, the more indirect the transaction.

All of this comes at a time when some states have chosen to change the calculus. In seven states, employers have to pay everyone minimum wage—including servers. In Washington, the state minimum wage is currently $15.75. So servers there start out earning $126 for a an eight-hour shift, as opposed to the $17 bucks they make in states where the minimum for servers is stuck at $2.13 an hour. That’s a big difference!

No Immediate Solutions

So: tipping is bad socially (it enforces social hierarchies and magnifies social and racial disparities), it is a poor way to address wage stagnation, and people generally don’t like it. Unfortunately, it’s very hard to end the practice precisely because it’s a social norm. In order for us to feel good about ending the practice and moving toward a more healthy system, two things would have to happen: worker wages would need to rise, and the public would have to agree to step away from the practice, despite a century of social conditioning.

Past efforts haven’t succeeded. Almost a decade ago, restaurants tried to reform the system themselves. They raised wages and prices and asked customers to stop tipping. Customers balked at the higher listed prices (even though they were paying the same bill) and restaurants lost traffic.

As the Times piece attests, however, fundamental changes may have tipped us closer to ending the practice than we’ve ever been (sorry!). I will confess that as a customer, I chafe at all the digital hands I see waving in front of me. (Also like everyone else, I feel pressure—for multiple reasons—to go ahead and tip anyway.) They system is breaking down and it will only get worse. When customers reach a point of real frustration, tipping may one day drop precipitously rather than marginally. I can use thought experiments to imagine what might happen next, with good and bad outcomes. It would be better if we managed the transition intentionally, but that’s the one thing I have a hard time imagining. So perhaps we’ll get a real-time experiment economists can study for decades instead.

Cover Photo: Cottonbro Studio