Economics of Tipping

I've written a couple of times about how I find the whole process of tipping in this country to be irritating.  There is absolutely no logical framework you can come up with to say why we are expected to tip restaurant workers but not, say, retail workers.  Tipping has long, long ago passed the point where it was a practice to reward good service and has instead become a way for employers to shift the burden of paying wages to their employees onto their customers.  For example, I wrote (or more accurately, ranted) here:

Unfortunately, restaurants and other service establishments have
twisted this act of reward and generosity into having customers pay the
wages of their staff.  Restaurants are simultaneously increasing
tipping expectations (from 15% to 20%+) while requiring tips on more
and more occasions by building them automatically into the bill.

The event that brought my irritation to a boil the other day
actually happened valet parking my car at a restaurant.  As background,
the establishment charged $4 to valet park your car.  Now, I am not a
socialist, so I accept that value is not driven by cost but rather by
what I am willing to pay for it, and I was willing to pay $4 to avoid
having to walk a few blocks from the free lot  (those of you from
Boston or NY are wondering what the fuss is about -- a valet parking
charge of any amount is virtually unprecedented in Phoenix, at least
until recently).

So I paid my $4, and then I saw the sign:

"Our employees work for tips"

You mean I just paid your company $4 for what amounts to about 5
minutes of labor, and now you are telling me that in addition, I need
to pay your employees' wages for you too?  This is pretty nervy - I
mean, other than a percentage concession payment they are probably
making to be the parking company at that location, what other costs do
they have?  I didn't want to hurt the young guy actually doing the
parking, but for the first time in years I didn't tip the valet.  That
little sign turned, for me, an act of goodwill into a grim obligation,
extorted from me by guilt.

I bring all this up because I saw an interesting piece the other day on Marginal Revolution:

1. Two studies show little relationship between quality of waiter service and
size of tip.

2. Hotel bellboys can double the size of their tips, on average, by showing
guests how the TV and air conditioning work.

3. Tipping is less prevalent in countries where unease about inequality is
especially strong.

4. The more a culture values status and prestige, the more likely that
culture will use tipping to reward service.

5. Tips are higher in sunny weather.

6. Servers can increase their tips by giving their names to customers,
squatting next to tables, touching their customers, and giving their customers
after-dinner mints. (query: how do lap dances fit into this

7. Drawing a smiley face on the check increases a waitress's tips by 18
percent but decreases a waiter's tips by 9 percent.

8. In one study, waitresses increased their tips by 17 percent by wearing
flowers in their hair.  In general it pays to look distinctive albeit not freaky



  1. Michael H.:

    I don't mind tipping at restaurants because I know what is expected and I figure the food is less expense since my tips help pay for restaurant labor. But I really hate situations where I don't know what is expected in the way of a tip. I would carry a 100-pound bag a mile to avoid paying a porter because I just don't know what is expected. I hate that.
    I posted about this same article at my blog.

  2. lines in the sand:

    Here's a Tip

    Two posts on tipping got my attention today as just this weekend it was an issue for us. When I had to hunt down a server twice before I had any silverware to dig into my rapidly cooling deviled crab,

  3. Matt:

    I think #2 on MR's list is more easily explained by interpreting the tip as a polite way of telling the bellboy to get the heck out of your room because you don't need his services anymore. The bellboys who stay in customers' rooms bugging them about the TV and the air conditioner and whatnot until the customers give them money will get more money than the bellboys who do their job and then go away. (Of course, in any reasonable world, the "then go away" would be part of the job description. Hotel compensation policies are not, however, part of any reasonable world.)

    Unless I get exceptional service, I tip waiters and such a flat 15%, on the knowledge that the IRS is taxing them on the assumption that I've done this.

    On the other hand, in any situation where "tipping" is not actually mandatory (in other words, if it's not included in the bill), I have a real problem with folks who get angry when they don't get tipped. The restaurant delivery guy who brought my lunch two hours late yesterday, for example...

  4. kevrob:

    My tipping pet peeve is when your party is large enough to have the "mandatory service charge" kick in, and the joint includes the sales tax in the base to which they apply the percentage. I'm sorry, if I am tipping 15% on a $100.00 meal, the server is getting $15.00. He's not getting his tip bumped up because the state is making me pay an extra $5 or $8 bucks, and forcing his employer to collect it.

  5. HeavyWinter:

    Tipping Discussion Continued

    You all read my post about how to tip when happy hour is involved. Let's continue round two, shall we? After getting thoroughly thrashed in the comments section when I said happy hour discounts shouldn't be included in your tip determinaton (which I st...

  6. Kory:

    Restaurants do not base the tip percentage on large parties on the entire bill plus tax. They do this on the pretax portion. I have worked on restaurants for the past 5 years, and neither have done this. Although, when the average person tips on their bill on say a 2 person table, they normally tip of the total bill including tax.

  7. pat:

    i work for a limo/van service in milwaukee, we do a lot of the transportation to and from the airport there. sadly, we're not allowed to post a "tips appreciated" sign in the van, but we are only paid 5.40/hr plus tips. so in order to make a living wage i have to get at least 30-40 dollars in tips per day... which is sometimes very difficult. I'm trying to come up with a way to explain this to customers, but its hard when the company charges 38 bucks for a ride out to the suburbs from the airport. to downtown is cheaper so tips can be better, but nothing is garuanteed... just wishing there was some way i could get the 10/hr that i need without being an ass and asking for money.. obviously i help with all luggage, and in/out of the van.. but many people just don't want the help.

  8. John:

    You said: "This is pretty nervy - I mean, other than a percentage concession payment they are probably making to be the parking company at that location, what other costs do they have?"

    Uh, insurance? You'd be amazed at how much valet companies pay for insurance. If you don't want to tip the valet, don't use the service. Period.

  9. kevrob:

    Good for Kory that the restaurants he (or she) worked for didn't pad the service charge unfairly. The fact remains that some places do, and some don't. Perhaps there are differences in local laws that regulate this practice.

    Hey, pat. I've taken the limo to Mitchell, and the guys who don't tip, especially if you handle their bags, are knobs. If I don't have the cash to tip, the 80 bus is only $1.75, right?