Time to Tap Out on Tipping?
The issue of tipping continues to vex restaurant owners. I've written often that I think we'd all be better off without tipping but its felt like the needle hasn't moved much in the past few years. The COVID-19 pandemic has perhaps provided an impetus for change. First, restaurants have a significant change in their cost structure and price increases are likely coming. Incorporating a gratuity into the price changes may be easier now and may also mask general price increases. Secondly, restaurant managers have had some time to reflect on their business models and many in the US and Canada have suggested this change is important for providing fair wages to all restaurant workers and to improve service. It may well be time to change the practice. It is worth providing a quick overview of the issue to help inform opinions.
Tipping has evolved as a social norm. We tip because we are expected to tip. Some restaurants enforce tipping for large groups. Almost every credit card machine asks you about tipping (including often prompting us as to how much). The argument is that tipping ensures good service but it doesn't seem like that is true. There is little correlation between the quality of the service experience and the size of the tip. Evidence suggests that we usually tip within a fairly narrow window regardless of how good the service is. That suggests that there is no penalty for poor service and, therefore, no incentive to provide particularly good service.
On the other hand there is evidence that expected tip is strongly correlated to the quality of service. That means that some servers (clearly not all), make an evaluation of either the size of the cheque or the generosity of the diner and adjust service to that expectation. That means the anticipation of a tip is affecting the quality of people's experience in restaurants regardless of how they actually intend to tip. This bad because it is often women, people of colour, and younger customers who are discriminated against and receive poorer service. That is clearly not in the best interest of the restaurant who wants every one to have a good experience and to come back. I've had this experience myself and the server acknowledged it when I asked about it.
There are other reasons that restaurants might want to move away from tipping. My work with Bruce McAdams highlighted a couple of key issues inside the restaurant. Servers benefit from tipping but cooks, who play an important role in our experience at the restaurant do not (or do to a lesser degree if there is some sharing). This institutionalizes inequity. There is often internal rivalry for tables and high volume shifts that is counter productive. There is also evidence of a phenomenon called "quota servers." These individuals start a shift with a target in mind for tips (tips represent a much bigger portion of their earnings than does the actual paycheck) and once they have achieved that they don't work as hard and service quality goes down.
If there are all of these bad things associated with tipping why haven't more restaurants changed? To start, change is risky. There is a fear that customers will not like giving up the perceived power they have in tipping. There may well be some customers who fight the change but there is evidence that it can work. A recent survey found that 56% of Canadians would prefer to see the tip included in higher prices. This is up from a 2018 unpublished survey in which we found that 58% opposed including a tip in the price. Many of use are uncomfortable with tipping and the process of deciding how much to tip. We are currently finishing a paper that analyzed the reviews of eight restaurants that decided to move away from tipping (pre-COVID). There was no decrease in average review after tipping (and one restaurant actually went up). The content of the reviews did not mention service more after the change either. Tipping is not a customer issue.
We run into trouble because this is largely a zero sum game. If the objective is to spread the existing tips over a wider range of staff to provide living wages, then someone is going to have to earn less. That someone is servers. If tips are incorporated into the cheque, servers are likely to earn less. This is compounded by the fact that they will also be taxed on all of that income rather than just on the portion that they declare (that varies from person to person). Restaurants that move to no tipping often have trouble keeping and attracting front of house staff. Union Square hospitality in New York began a process of going to no-tipping and lost 30-40% of their front of house staff. As restaurants re-open and work to rehire their staff, this might be more difficult. Union Square recently backed off of their no-tipping commitment.
The issue is also not straight forward from a restauranteur's cost perspective. If they eliminate tips and pay all of the increased revenue in wages their costs also go up due to payroll taxes. In an industry with tight margins that is coming out of a catastrophic shutdown this may be difficult to achieve.
The move away from tipping will likely come at some point. It remains to be seen if the momentum we are now seeing is sustained or if the current economic climate makes mangers risk averse or the costs prohibitive.
Recommended citation format: Michael von Massow. "Time to Tap Out on Tipping?". Food Focus Guelph (96), Department of Food, Agricultural and Resource Economics, University of Guelph, August 17, 2020.