BrainStuff Classics: Is Our Tipping System Gratuitous?

The way we tip and pay servers in North American restaurants fosters unfair and unequal paychecks for the whole staff. But it's so entrenched -- how can we fix it? Learn more in this classic episode of BrainStuff, based on this article: https://money.howstuffworks.com/when-will-reach-tipping-point-for-tipping.htm

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Episode Transcript

Speaker 1 (00:01):
Welcome to brain Stuff production of I Heart Radio. Hey
brain Stuff. I'm Lauren Vogelbam, and this right here is
another classic episode. One of the many conversations that's been
going on during the COVID nineteen pandemic concerns how we
pay our service industry workforce, especially with low wage fast

(00:22):
food restaurants struggling to fill positions. It's increasingly clear that
the industry needs to change as we move forward. Part
of that conversation revolves around tipping and the federal tipped
minimum wage. Today's episode digs into how it works and
how it doesn't work. Hey brain Stuff, Lauren vogelbom here,

(00:44):
Why do restaurants use tipping? Is it a reward for
good service? Studies show that tips don't go up or
down significantly based on the quality of service. Does tipping
attract and retain better wait staff? Not really? Is it
a bribe so the waiter won't spit in your soup
the next time you come? Probably depends on the waiter.
In most countries, a service charge is included in the bill. However,

(01:06):
in America, instead of an upfront service charge, diner's hand
over fifteen or more of the price of the meal
to the server at their own discretion. It's not required,
but it is customary. But this seemingly generous practice has
some unpleasant hidden costs for starters. The existence of tipping
allows restaurants to pay servers a federal minimum wage of

(01:27):
two dollars and thirteen cents an hour, so waiters in
most states basically live and die by tips. The result
is that tipped workers are twice as likely to live
in poverty and depend on food stamps as other workers.
Then there's the opposite problem in stronger restaurant markets like
big cities. The existence of tipping means that waiters in
busy restaurants end up making a lot more money than

(01:49):
the cooks and dishwashers who get paid a fixed hourly
wage while working just as hard. Add to all that mess,
the fact that America's tipping system is rooted in racist
hiring practices emerged after the emancipation, when white business owners
were trying to avoid paying new black employees, and tipping
comes out looking decidedly ugly. So when does it make

(02:10):
sense to abandon tipping in favor of raising restaurant prices
so that all staff is paid fairly or would customers
bulk get that. Sarah Clifton is a mathematics professor at
the University of Illinois who specializes in modeling complex social behaviors.
In a recent paper, she created mathematical models of two
hypothetical competing restaurants, one with conventional tipping and one without.

(02:33):
The paper was published in the February issue of Chaos,
a journal from the American Institute of Physics. The key
variable in Clifton's models is the average tipping rate. Tipping
rates have been creeping up of the past few decades,
from ten percent to fifteen percent and now close to
in major US restaurant markets. Clifton's models are designed to

(02:53):
be as simple as possible, with every player in the
system motivated purely by monetary gain, meaning that when cooks
are paid better, they're more likely to stay, meaning that
food quality goes up. When waiters are paid less, they're
more likely to leave decreasing service quality, but eventually the
waiters would return if diners flooded the restaurant because of
the food quality, which would presumably mean more profit and

(03:16):
higher wages for all. What Clifton found was that when
the average tipping rate crosses a certain threshold, call it
the tipping tipping point, restaurants will make more money by
abandoning tipping. Unfortunately, Clifton doesn't have enough real world data
to calculate exactly what that magic tipping point is. Dozens
of high end restaurants across the United States, led by

(03:38):
New York chef and restaurant toward Danny Mayer, began experimenting
with no tipping policies. These trend setting restaurants either increased
menu prices by an average of twelve fifteen percent or
included gratuity in the final bill. That way, the restaurants
could distribute the earnings more fairly and pay everyone a
fixed hourly wage. But this plan was not popular with

(03:59):
the public. Michael Lynn, a professor of consumer behavior at
the Cornell University School of Hotel Administration who researches tipping,
reported that online customer reviews of no tipping restaurants went
south when those no tipping policies were instituted, and we're
worse when tips were replaced with service charges. Lynn said,
people hate service charges, and if I increase my menu prices,

(04:21):
They're going to think I'm more expensive, even if the
combined bill is no different in other no tipping restaurants.
It was the waiters who revolted. At Bar Agricole in
San Francisco, servers were used to making twenty five dollars
to forty dollars an hour including tips, while the kitchen
staff was only making thirteen to twenty dollars an hour.
When owner Thad Woggler decided to ditch tipping, his cooks

(04:42):
and dishwashers were psyched, but the serving staff kept leaving
for more traditional restaurants, so Waggler, like lots of other
pioneering restaurant owners, switched back to the normal tipping scheme. Clifton,
our mathematician, feels that these restaurateurs were simply ahead of
their time. She said, when restaurant owners get rid of
tipping too early, as we've been seeing with some really

(05:03):
nice restaurants, they sometimes have to reinstate it because it's
not profitable that would conform with what customers want. Her
model indicates that casual restaurants should actually make the move
before fancy ones, because the point at which the tipping
rate becomes profitable would be lower for them than in
the high end places. However, Joe's Crabshack, a decidedly not

(05:23):
high end chain, tested the waters in late when eighteen
of its restaurants abandoned tipping. Although customers were essentially paying
the same exact total for a meal as they were
when tipping was allowed, said they didn't like the not
tipping policy. According to restaurant research, customers said they didn't
trust management to share the money, and they felt it
took away incentive for good service. Joe's dropped the not

(05:46):
tipping policy less than a year after it started after
losing eight to ten of its customers during the trial.
So Americans themselves haven't reached the tipping tipping point yet.
In the meantime, restaurants will likely keep experimenting with various
tipping policies until they find one that keeps customers, waiters,
and kitchen stuff all equally happy. Today's episode is based

(06:10):
on the article when will we reach the tipping point
for tipping? On how stuffworks dot Com written by Patrick
ja Kaiger. Brain Stuff is production of I Heart Radio
in partnership with how stuff Works dot Com, and it's
produced by Tyler Clay. Four more podcasts my heart Radio.
Visit the i Heart Radio app, Apple podcasts, or wherever
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