How would the US Economy be affected if Tipping was abolished?

Great Debates
1

Inspired, in part, by this thread on tipping/delivery charges…

As an Australian, I find the US custom of tipping to be, well, disturbingly close to bribery, or at least a semi-optional form of taxation, and one I’m not particularly keen on participating in.

The whole “tipping” thing has been done ad nauseum on these boards (and, for the record, I totally agree with Mr. Pink on the subject), but my understanding is basically “You must tip people in service industries because they get paid practically nothing”.

In this part of the world, you don’t tip (exception: Taxi drivers can keep the change if the fare’s close enough to whatever note you’re paying with), because everyone gets paid a decent wage- more or less, in theory anyway.

So let’s say one day the US Government (and every State) decided to simply raise the hourly wage to something decent- say, USD$15/hr, and that tipping was no longer required.

What sort of effect would this have on the US Economy overall? Would anyone sensible object, and if so, why?

2

You would not need to raise the minimum wage. People who get paid with tips are excempt from the mimimum wage (provided that their wages plus tip make up the minimum wage). So restaurants would have to pay minimum wage. Mathematically, this should all work out. The restaurants would have to raise their standard prices to make up for the additional expense, but people wouldn’t pay tips. If the server’s previous wages plus tips put them at mimimum wage, the total cost to the consumer should remain the same. Of course, this means that servers earning more than mimimum wage would lose out unless they worked at a place that paid more.

I’d be all for this. I’ve never liked tipping in the US, but I tip at the appropriate level so that I fit in. Back in South Africa tipping is far less predominant, and of a lesser amount. I always feel that restaurants should pay at least minimum wage just like any other industry. In effect they’re getting you to pay for their labor costs directly. If you went into a business that advertised a product for $25 and when you went and paid they told you there was an additional charge of $3 to cover their electricity bill for that month, I am sure people would be unaccepting. I see tipping as a very similar thing. I would much rather prefer consistency across industry.

3

Just a further clarification, not changing the minimum wage means that this would not be a legislative thing, unless you made a law saying it was illegal to tip (a completely ridiculous idea). So it would have to be a huge culture shift away from tipping, rather than a government thing. I don’t see it happening.

4

Is it really as simple as just raising the minimume wage to $15? Since the employer would have to pay additional taxes I would expect the price on the menu to increase and perhaps fewer people will go out for drinks and dinner. I imagine the waitress at Denny’s wouldn’t object but some of the waitstaff in restaurants and bars that receive a lot of tips would object. My sister was making over $30,000 a year as a waitress in a regular bar/restaurant just two years out of high school. Thirty grand ain’t a whole lot of money but it isn’t bad for a twenty year old with no formal education.

Marc

5

If tipping were abolished in the US through increases in minimum wage, the first noticeable change would be a dramatic increase in the cost of the various services affected. The price of a meal in a diner would rival that of current high-end restaurants. I do not believe that smaller independently owned food services would be able to maintain their traditionally low prices if they were forced to raise the employee wages. To help set the scene, first time servers at a popular US chain, where the average person eats for $15-$20, are paid a base salary of $8/hour. The average meal at a diner costs about $6.50.

A mandated minimum wage would bring a shift in the types of people employed in certain industries. Employers would be significantly less likely to hire anyone who requires training. This would make it more difficult for young people (16-2_) to get the jobs that they would have previously been prevalent in.

The only real industry that I can say much about is the food industry. The problem with a standard base like $15 is that it mainly helps servers who are in positions where their tips do not generally take them over $15/hour. I spent a summer serving in a diner and on good nights I easily averaged close to $20/hour. If I knew that I would have received a consistent wage, however, I do not think that my performance would have been negatively affected. Having a set wage does not lead to automatic half-assed performance.

Personally, I think that a mandated gratuity for all diners would be a better move. Primarily, it would allow employers to raise wages without raising prices. As a result, employees would not have to worry about losing various benefits to increase their wage because the money would be coming directly from the diners.

Socially, some people would be upset with no longer being able to control their service. People tend to associate tipping with power because they are able to directly reward, or punish, the person serving them. Other people would be relieved at not having to worry so much about the quality of service. I have been out with friends who spend the entire time examining every detail of their service. Did the server fill my water glass enough or too much? Did the server bring enough bread? Did the server interrupt me? Did the server give me enough time to choose a meal? Were they around enough or too much? Not really my idea of a good time.

6

Some business models would be shot to hell like high end bars. I worked in one in New Orleans during college and we made $400 - $500 dollars in tips a piece each night on Fridays and Saturdays. The total for the rest of the nights was still way above minimum wage. The bar could choose carefully among employees and get the most well-known bartenders in New Orleans and the rest of us had a certain look that was considered part of the establishment.

Places like that simply can’t switch over to paying $80 and hour on certain parts of the week and much less for the rest of it. Only the best of us got the good shifts and this is very common in the service industry. Why would people want to work weekend nights anymore especially when the level of effort during those times can be positvely athletic but the tips make it worthwhile?

European service outside of the finest establishments tends to leave much to be desired. American service tends to be superior especially when extrodinary efforts are required and this is the result of a tipping system.

7

Some European service is so bad it’s actually unbelievable that the people don’t get fired on the spot. That said though US service is just OTT. I remember telling several service people to stop asking me every 5 mins was I ok and did I need anything. If I needed something I’d attract their attention. Just what you’re used to I reckon.

Tipping is so part of US culture that IMO it would be impossible to remove it as it’s not just a financial thing anymore it’s also cultural but if it was stopped and prices were raised to cover the difference people wouldn’t see that and just see higher prices. This would put lots of establishments under a lot of financial pressure.

8

Servers would be uglier.

Seriously. The practice of tipping means that dressing nicely and looking good pays a premium, so more attractive people are enticed into those jobs.

Service would be poorer. Tipping is incentive pay for better service.

Service industries would be more difficult to manage. Tipping helps management by having the customers directly compensate the best employees. Absent tipping, the manager has to take over that function and be more vigilant. And since the manager will never know how pleased the customer is to the extent that the customer himself is, the lack of information will make service industries run less efficiently.

Lazy, surly employees will do better. Good employees will do worse.

Tipping is a good thing. Just consider it a cost of service (you’d pay it anyway - at least this way you have the option. Just don’t be cheap and ‘opt out on principle’. That just pushes the cost onto everyone else)

9

If you raised the minimum wage to $15 you could say goodbye to a lot of jobs.

10

I think a better way would be for the government to directly outlaw tipping. Something like the merchant can only take in the posted or stated price. It’s a law that wouldn’t even need enforcement - the customer base would be happ y to oblige.

11

Would they be as happy with the 15-20%+ increase in price?

12

“Abolishing” tipping wouldn’t change the economy, other than some short-term adjustments. Tipping, however, is in the American psyche. That would be a lot harder to change.

You can talk about how things are done in Australia and New Zealand, but this isn’t Australia and New Zealand. And other than a few “Mr. Pinks” (or was it Mr. White - old age and faulty memory), there is no hue and cry to change the status quo.

13

Mmm-hmm. And what explains our notably attractive flight-attendant base? Managers would still benefit from attractive servers; they can still hire based on looks and demand that their employees dress well.

Yes, we realize that that’s the common rationale, but how well does that work out when a) few people bother with tabulating their tips based on level of service and b) tips are paid after the service is rendered.
Service industries would be more difficult to manage.

This is the ONLY benifit that tipping provides, and probably the only reason it exists. Also, it’s only a benefit to the manager. As a customer, I don’t feel like doing his job.

A vigilant manager can fire lazy, surly employees just like with any other job.

Option, huh? I bet you wish we still had the “option” to haggle prices like in a bazaar for every transaction, or even offer other items for barter.

14

You still do, if you go to the right place. That’s exactly the business model for buying and selling cars, for instance. That sort of thing is ubiquitous in the Middle East as well, and it makes for an insightful and very personal experience with the person you’re buying from. In fact, that is probably my fondest memory of my time in Kuwait, dealing with the merchants on a personal basis rather than just throwing money at them.

But yeah, tipping is absolutely an option. You are under no obligation to do so. But remember, they are under no obligation to do anything but the bare minimum in the future. I think you’ll find that if you tip you’ll have a much more enjoyable experience the next time around.

15

In that respect, tips are like gifts. By definition, a gift is something you are not obligated to give. But there are situations in which not giving someone a gift would be at least a breach of etiquette.

16

Having travelled a LOT in both the U.S. and elsewhere, I am firmly in favor of the tipping system. Excluding the high-end restaurants, IMHO the service is **usually ** inferior. Servers get to you when it’s convenient, keep you waiting, and are generally lackadaisical about service in general. I’m not talking about firing offenses like spitting in the food or getting abusive; just general “doing the minimum.”

I’ve gotten better service in most ordinary U.S. diners than in many European hotels and mid-range restaurants.

In response to one thing yojimbo said, IMHO intruding every 5 minutes is not good service. Glancing around all your tables every 5 minutes to see if anyone’s trying to get your attention is good service.

17

I know; and that’s why there are now dealerships advertising the fact that their sticker price is the final price. Obviously, the lack of the hassle of bargaining is a selling point for Americans. Tipping is a similar hassle.

Well, I guess that sort of thing is cute as a temporary experience, but people here appreciate the simplicity of a stated price.

18

I agree with most posters, like Sam Stone and pool. There will definitely be less jobs, less businesses/restaurants – well, definitely less cheaper ones, and higher prices and worse service if tipping were somehow outlawed and the minimum wage raised to $15/hr.

Anecdotally, I personally don’t expect a lot of service, but if my time in Europe is of any indication, even the better restaurants will have less than motivated service. Even I had cause to complain at English restaurants. I would also expect no free soda refills, no free drinks (if you get to know your waiter/waitress), and no free appetizers.

Anyway, there would be a large shift of labor to the higher end restaurants because the smaller/less expensive restaurants will not be able to afford the labor or higher costs. Those jobs and those taxable incomes will be lost. In the short term, some of those restaurants will convert to the fast food model, and I suspect some business will try to challenge the law by offering a take out menu and a eat-in menu both with different sets of prices.

Workers at higher end restaurants will have much, much less incentive to be exceptional their job, especially in the short term. Longer term, as the new work ethic becomes adapted, later generations will see even less incentive to provide more effort. Management will have to contend with workers who do the bear minimum because the cost of firing, hiring and just general turnover will make more immediate firings more prohibitive.

To give you some idea, this girl I used to date in college got a job in the summer after graduation at this upscale steakhouse. She was waiting to get an internship to be a social worker (master’s) at this prestigious hospital, but the department was having trouble getting funding for her position (internship leads to full-time position). Anyway, because of unexpected delays, she ended up working there for a year, but cleared $50k for about 40-45 hrs/wk because of tips – her base rate was $2.65/hr (I want to say $3.65, but I’m pretty sure it was the former). This was almost $10k more than her salary as a social worker.

Also, the higher wage rate will most likely have the unintended consequence in the short term to punish those without an education. Unemployment lines will rise and there will be a bigger drain on our social welfare resources. Additionally, less taxable revenue will also mean the double whammy of having less social welfare resources available, unless taxes are also raised (thus completing the trifecta).

19

What increase in price? The bottom line would be the same - unless you are a cheapskate, that is.

I assume the OP means $15 minimum wage for servers only. The minimum wage applies to lots of people who don’t get tips, after all.

IIRC, European prices have a service charge built in. Eliminating tips and raising prices would not really change anything relative to Europe, but it would make customers feel not as much in control of the dining experience. Since tips are usually pooled, bad service doesn’t directly affect the server all that much, but consistent bad service from one person might make other servers pressure the offender to shape up to increase the pool. Lots of US restaurants have team service. I think peer pressure would be more effective than direct tipping in improving performance, and that goes away with a service charge.

Is the real problem that Europeans get confused by our system?

20

In fairness my experience with US service is limited to a couple of months knocking around Vermont with a short trip to Boston thrown in so it’s hardly representative of the whole country.

A lot of places over here put an automatic 10-15% service charge on the bill. It’s very annoying as I’ve heard varying stories of how much of that money actually finds its way to the actual person/s who served you. So you end up tipping twice sometimes by paying the charge and then throwing some extra cash on top for the server just in case. Pain in the arse. Yeah, you could ask in every restaurant but sometimes you just couldn’t be arsed.

I’ve no problem with tipping BTW and Ireland anyway is very fast becoming more and more like the US in regard to who you tip. I don’t particularly like the idea of a business paying someone fuck all and making the staff rely on tips.