Friday, July 14, 2006

Why Do We Tip?

A while back, I got into an interesting online discussion of tipping, in particular restaurant tipping, a practice that some people approve of and others don't. I offered what I think of as the standard economic explanation--that it was a way of rewarding waiters for good service (with high tips) and penalizing bad service (with low tips). It depends on social norms or repeat custom to work, but takes advantage of the fact that the customer has information about the quality of the service that the employer does not have.

The problem with that explanation, as a number of people argued, is that it depends on customers substantially varying the amount of their tip—and many, perhaps most, don't. If you almost always tip 15% and occasionally raise it to 20% for good service or lower to 10% for poor, that isn't much of an incentive to the waiter.

It occurred to me that there was another possible explanation, having to do with the customer rather than the waiter. People like to feel generous. Giving a tip when you know you don't have to makes you feel better than paying the same amount on the bill. People like to feel honest and honorable. Abiding by the implied contract to tip if you get reasonable service, when you know you could have stiffed the waiter and saved the money (provided you don't plan to come back to that restaurant), gives you a chance to prove to yourself and your table companions that you are an honest and honorable sort.

36 Comments:

At 4:35 PM, July 14, 2006, Blogger COD said...

Service is typically so bad anymore I tend to tip generously for for even average service, in hopes of keeping those folks in the trade.

Another thing that I do is try to tip in cash. That way the money goes straight to the server without passing through the establishment. I'm not sure of the rules, but I would guess if the employer knows about the tip (ie - it's on the credit card) they have to report it.

Not that I'm implying that any waiter would forget to report his tips ;)

 
At 4:48 PM, July 14, 2006, Anonymous Perry The Cynic said...

I suppose I think of the (U.S.-type) tip as the right to deduct up to 13% of my effective bill in case of bad service. I tend not to do that a lot, but I do when service is wilfully or thoughtlessly bad. (I realize many people don't.) Anything above 15% is genuine gratuity for unexpectedly (and uncalled-for) good service.

It does make me more likely to actually frequent a restaurant, particularly one I haven't visited before; since it gives me an option to express my displeasure with service without entering into a legal dispute about owing a bill I don't want to pay.

Of course, the proper response to bad *food* is to complain to the management and be given better food (or equivalent in terms of credits etc.) In such a transaction, the waiter is expected to serve the guest's interests, on pain of losing his tip for bad service.

Cheers
-- perry

 
At 7:06 PM, July 14, 2006, Blogger Glen Whitman said...

Another advantage of David's explanation is that it overcomes the free-rider objection: Why should I care about giving good incentives to a server I'll probably never see again at a restaurant I may never visit again? The benefits of the good incentive will go to future patrons. But if the primary benefit is feeling good about myself and sending signals to my dining partners, then it makes sense to tip regardless of whether you'll ever return to this establishment.

 
At 7:56 PM, July 14, 2006, Blogger SheetWise said...

In most cases the server doesn't know your tipping habits until they're done serving you -- so it's not a benefit you can collect unless you're at a place you intend to frequent. In places that you frequent, entertain and bring clients -- your previous tipping habits will have purchased virtually any level of service you want in future visits.

That's probably why if I have a beer in an airport that costs $9.50 -- I'll only leave the .50 as a tip. It's only 5% -- but it's a pretty good tip on a reasonably priced beer ;)

 
At 7:05 AM, July 15, 2006, Anonymous Dan said...

I think cod was closest to the reason I continue to adjust tips. Having waited tables myself, my tipping range tends to be 15-25%, which is actually around average for the Boston area, or so the restaurant trade mags my boss kept in his office claimed.

The tipping system works fairly well, to be honest, not by changing the behavior of the server by showing them where they've gone astray, but by weeding incompetent servers out of the business. A good server will have a higher average income than a bad one. They're not going to notice an individual tip of less than 40%, and if the tip is under 15%, they'll probably just blame you for being an asshole.

But I saw a good share of bad servers come and go, cursing under their breath that it was impossible to make a decent living waiting tables, because all patrons were assholes. I wished them good luck, and tucked my average 29% tips into my pocket.

 
At 12:03 PM, July 15, 2006, Anonymous Justin said...

I work at the counter of a coffee shop. We have a tip jar. Someone made a little paper sign that said "Up Your Karma!" This really brought in more tips. Thats observation number 1.

Also, I realized that people tip more when there is a good deal of money already in the jar, and they tend not to tip much when its empty. This is why when I come in in the morning, I drop a few singles in the jar before the day even starts.

These insights reveal a number of things. First, they suggest that tips are motivated by neither general altruism nor pity for the wage-earner. They suggest that people tip so that the goodwill comes back to them (karma) or because people appreciate a cute sign. But more importantly, the correlation between amount already in the jar and amount tipped suggests that people tip just to keep up with the Jones's. That is, if someone thinks that everyone leaves a dollar, they'll leave one just to not appear cheap.

I think the relationship between service and tip is exagerrated. Very few people will not tip at all, even in the worst cases. That's "improper."

 
At 5:17 PM, July 15, 2006, Anonymous Michael Sullivan said...

If you almost always tip 15% and occasionally raise it to 20% for good service or lower to 10% for poor, that isn't much of an incentive to the waiter.

Actually it's huge in the long run if the waiter gets most of their income from tips. On average, getting 10% vs. 20% is the difference between making $25k and $40k, or $35k and 60k.

As others have pointed out, it doesn't really encourage better future service from a given waiter, but as a general practice it tends to weed out the worst waitstaff (because they get shitty tips and seek greener pastures, while good staff makes pretty decent money).

I wish that more people would either tip <15% for poor (but not horrible) service, or >20% for excellent service, because it would accelerate the process. But it's an obvious commons problem.


Michael

 
At 2:22 AM, July 16, 2006, Anonymous Paul the Australian said...

G'day mate. So what's this "tipping" thing you lot are all going on about then?

 
At 8:17 AM, July 16, 2006, Blogger iamamish said...

Regarding the second explanation, that people tip in order to validate their feelings of self-worth, I think it also can serve as a signal to others of the same. When I delivered pizzas, I knew I had a great tip coming when several men would argue over who would pay; each arguing, of course, that he himself should pay, not that the others should. :)

 
At 5:44 PM, July 16, 2006, Anonymous Unnr said...

I tend to go to a few different places pretty much weekly. The best service I've ever gotten has been in one particular place where tips aren't accepted. The next best is generally at a place I've never been before (which is odd, if most of the other ideas are correct, because I tend to tip high).

Anyway, I tip for a very clear reason: the base wages here aren't reasonable, and I object to underpaying people. I do vary my tips pretty widely depending on service levels... nothing once or twice. Sometimes mroe than the bill when I've just had a coffee.

 
At 5:55 PM, July 16, 2006, Anonymous the dude said...

My biggest grievance is that as a society we have become obligated to tip, which started as an act of gratuity. We're required to tip for more and more services. I've always felt that tipping in a restaurant is appropriate because you're rewarding good service, but it's ridiculous to tip in a coffee shop, or sandwich shop, or a newspaper delivery, taxi driver, etc.

In the case of the coffee shop or taxi driver, these people are just doing their jobs, nothing more. They're not providing service, in the waiter sense. The taxi driver in particular irks me. I've been grumbled at and called a cheapskate (not his actual words) when I've tipped a dollar on a six dollar ride. As an ESL teacher should the students tip me for providing them with a service? Obviously not (although it would be nice). Now if a driver can get me to my destination in record time, sure that's worthy of a tip.

I am currently living in a country where people don't tip, and it's quite nice. It's not a hassle when you leave a restaurant, just pay and go. Although the service is much much worse.

 
At 6:37 PM, July 16, 2006, Blogger Milhouse said...

I've never understood why the same service should vary in value based on the cost of the food being served. I understand the theory that pricier restaurants will tend on the whole to have better service, but I haven't seen that to be the case, and it still doesn't explain why in the same restaurant I should tip $3 on a $20 meal, but $4.50 on a $30 meal.

Therefore my general policy is as follows. This is what I consider standard service: Within 5 minutes of my showing up, I should either be shown to a table, or told that there aren't any available and asked to wait. Within 5 minutes of being seated, I should have water, bread, and a menu. Within 5 minutes of that, a waiter should have come by to take my order, and if I'm not ready the waiter should come back every 5 minutes until I am ready. Either a water jug should be left on my table so I can refill my glass myself, or else my water glass should be refilled within 5 minutes of my emptying it. When my food is ready it should be brought to me, and once it's obvious I've finished, within 10 minutes someone should have noticed, confirmed with me that I have indeed finished, taken the plate away, and offered me the chance to order dessert or a drink. Once I've finished and am ready to leave, it should not take me more than 5 minutes to catch someone's eye and get the bill; and unless I'm expected to pay at the front, my credit card should be taken within 2-3 minutes, and back within another 2-3 minutes. To me, all of that is worth $2 per person, regardless of the size of the bill. It's not a lot of work, and if someone can explain why it's worth more than $2 I'm all ears.

If the waiter is actually helpful in some way beyond that, then we get into the realm of it being possibly worth something more. I've had service that was good, and I've willingly paid for it. But what I've described above is what I typically get, and sometimes I don't even get that.

Oh, and I don't count a perfunctory "is everything OK?", 90 seconds after the food arrives, as extra service to be rewarded, if from then on I never see a waiter again, and have to signal vigorously for several minutes when I actually want something.

 
At 6:39 PM, July 16, 2006, Blogger Milhouse said...

Actually, change most of those "5 minutes" to 7-8 minutes, and I'm still fine with it. But not 10-15 minutes.

 
At 11:23 PM, July 16, 2006, Blogger SheetWise said...

milhouse --

7 to 8 minutes? You've actually waited 10 to 15 minutes? I thought you were being extremely tolerant in allowing 5 before you considered it bad service.

Your standards allow 30 minutes for a meal, independent of preparation time and eating. I'll agree with you -- $2 per person, and that's probably overdoing it.

 
At 9:10 AM, July 17, 2006, Anonymous Rex Little said...

It's a fact that nearly everyone tips the waiter, even at a restaurant where they've never eaten before and will never see again, and even when they're eating alone and have no one to impress. Somehow it's been ingrained at the very deepest level that this is simply the right thing to do. If the same sort of belief could be inculcated with respect to other services, the problem of how to fund national defense in a libertarian society would be solved.

 
At 1:03 PM, July 17, 2006, Blogger zoiprof said...

My explanation for why we tip is because we like well-prepared food. The proprietor of a restaurant can either be out front supervising service or back in the kitchen supervising food preparation. He/she can't be in both places at the same time. Tipping allows the customers to effectively monitor service, while freeing the proprietor to monitor the kitchen.

One empirical prediction of this hypothesis is that in more expensive restaurants, tipping rates should be higher, since food preparation is more important. I think that is generally true.

Another empirical prediction of this hypothesis is that the more visible the kitchen, the lower one would expect the tipping rate to be. Again, my experience tends to bear this out.

 
At 2:45 PM, July 17, 2006, Blogger David Friedman said...

"If the same sort of belief could be inculcated with respect to other services, the problem of how to fund national defense in a libertarian society would be solved."

Great minds think alike. You will find that point made in my book The Machinery of Freedom, published more than thirty years ago, along with a rough estimate of the amount spent in tips.

 
At 11:08 AM, July 18, 2006, Anonymous Rex Little said...

That must be where I got the idea, then. I read that book over 30 years ago.

 
At 11:26 AM, July 18, 2006, Blogger Scott said...

You're probably right, but I think it somewhat odd coming from an economist: it seems you've pretty much explained tipping behavior by saying people have a taste for tipping. That may be true--but it seems you're far afield from typical postulates of self-interest and rationality.

 
At 2:46 PM, July 18, 2006, Blogger SheetWise said...

scott --

... but it seems you're far afield from typical postulates of self-interest and rationality.

I doubt it. Self-interest is more benevolent than most people would assume. Bean counters may always get a fair hearing -- but they don't rule the roost.

If employees were willing to work for their employers willing transfer of a "fair share" from the profits -- half of them would be happier than they are now.

 
At 11:04 PM, July 18, 2006, Blogger Jonathan said...

Here in Spain, I don't think people bother to work out percentages, but the normal tip seems to be about 2 or 3%.

When I was in Germany 30 years ago, the norm was to leave small change: the kind of small change most people probably wouldn't bother to pick up if they saw it lying in the street.

I haven't noticed any problem of bad service in either country. I think Americans leave huge tips merely because it's their custom to do so.

The custom of tipping is archaic, unnecessary, and embarrassing; I wish it would die out completely. I try to do a good job because I want to keep my job, and because it pleases me to do a good job. I don't get tips and I don't need to be motivated by tips. Why should other people need to be?

If your salary isn't enough, it's your own responsibility to look for a better job; it's not my responsibility to top up your income.

 
At 1:26 PM, July 20, 2006, Blogger Leonard said...

I tip correctly mostly for the reason you hypothesize: because it's about my self-respect. I know the waiter isn't paid well, and to stiff or tip low is an insult that I won't willingly give.

That said, I also vary my tips according to service. Although it's true that 10% plus or minus won't affect the money-exchange very significantly, that's not the point. It's a communication thing. If you tip low, you signal the waiter or waitress that you got bad service. Similarly for a high tip.

It's similar to just saying something, but easier on us non-confrontational people. When I go out, the last thing I want is to have a fight about the quality of the service, but I do want them to know if I am displeased. The tip is well-calculated for this, since it sends the signal after I am out of there.

 
At 5:20 AM, July 28, 2006, Anonymous Anonymous said...

I tip generously, but put the cash under my dining companion's plate or napkin, making sure that neither the waiter nor the companion see.

 
At 2:28 PM, August 21, 2006, Anonymous Anonymous said...

I tip generously, usually 30%-50%. If it's a special holiday, like Turkey day or New Years Eve, I'll leave an extra $20.

By my standards, the 'standard' 15%-20% range is a low tip, and what I might give if service was sub-par. Of course, the waiter in that case wouldn't know that, so this goes along with David's explanation.

The main motivator for me is just human compassion. I live in California where living expenses are high, and I can't imagine it's easy for a waiter to get by on their salary.

I have occasionally had a waitress go out of her way to come and thank me after I've paid, which, when it happens, is quite nice.

 
At 3:58 PM, September 28, 2006, Anonymous Anonymous said...

This tip thing sounds awful. It is like the taxi drivers/waiters feel like they are owed tips, even if they provide a lousy service. I'm not going to be guilt tripped (guilt tipped?) into tipping anyone, I would only tip if they provided excellent service and it was *my* idea to tip them.

 
At 7:38 PM, October 17, 2006, Blogger Robert said...

I'm surprised that on a economics-focused blog like this most commenters (and, admittededly, the regular post itself) don't focus on following the incentives. The key is to look not at the incentives for diners to tip (to encourage good service, feel good about onesself, etc.) but rather at the incentives for waiters or waitresses to work for tips.

The federal minimum wage laws provide for a "tip offset", which allows that a restaurant can pay its employees a greatly-reduced minimum wage of $2.13 per hour, provided that when you add in tips a waiter or waitress's total hourly take exceeds the minimum wage. From a practical standpoint, since a waiter at even a mid-priced restaurant can take home 30 or 40 bucks for a 4-hour shift, this means that waiters are working primarily for the tips.

Ultimately, it's the waiter's total take-home--and the opportunity cost--that matters. If the total wages and tips combined do not exceed what that person could reasonably expect to make in another line of work, then that person will likely move on to other jobs. From the restaurant owner's point of view, if diners suddenly stopped tipping very well, then likely many of the restaurant's servers would quit, and the restaurant owner would have to raise the hourly pay to attract and keep enough workers to run the business, which means labor costs would go up, and ulimately the owner would have to raise the food prices to compensate--which means the diners would end up paying for the service in one way or another.

Essentially, the waiter labor market is at an equilibrium where, on average, the amount of money the restaurant patron is willing to pay (whether out of conformity or guilt or pride or sympathy or whatever) is sufficient to supplement the tiny hourly wage paid by restaurant owners and attract enough people to serve as waiters.

So why do we tip? Justin's coffee shop observations hint at the explaination: "people tip more when there is a good deal of money already in the jar, and they tend not to tip much when it's empty." And why is that? The tip jar is a signal of the proper social behavior: Am I supposed to tip these guys for bringing me coffee or not--oh, look, a bunch of other people have tipped them, so that must be the right thing to do.

We tip because everyone else does. So, would it make a difference if we all decided overnight that it's a silly convention and we weren't going to follow it any more? Milhouse's explanation for how much "good service" is worth to him is ludicrously convoluted, and admid all its detail it ignores the fact that he and the waiter aren't negotiating before the meal and agreeing on a mutually acceptable price. Milhouse may think all that effort is worth only 2 bucks per person, but his waiter may have a different opinion.

The restaurant tipping system essentially runs like some of the quaint vegetable stands I've run across in New England, where the proprietor lays out the vegetables, puts an "honor system" jar on the counter, and leaves, allowing customers to deposit whatever amount they see fit. Whether one particular shopper puts in a nickel or a twenty-dollar bill for a pumpkin doesn't really matter; but, if in aggregrate all the vegetables disappear and there's practically no money left in the jar, you can bet the farmer isn't going to bother to keep the stand running for very long.

 
At 7:22 AM, November 06, 2006, Anonymous Anonymous said...

Right now, because of the vile situation crated by our political system that allows people to be paid less than a living wage. I tip between 10 and 25% in restaurants.

Nothing if the server is aggessivly rude, which has only happened a few times. However, I believe tipping is a is a silly tradition and if anything it should be based on the entire establishments ability to get the job done with curtusy and excellence.

Restaurants should just bill me for my meal and take care of their people, like any other business.

I may be wrong but I believe that expected gratuities, above the stated or negotiated price of a service, come from a time when the employees were little more than slaves. The promiss of the tip or the whip made people more comfortable that they would not be robbed or worse.

In a country this RICH no one should have to reley on tips to make ends meat.

Customers do not know what a waiter is paid. It could be more than $10 or less than $3 should that not influence the tip.

Why shuold I pay a higher tip, in the same resaurant, for a $50 steak than for a $7 hamburger and fries, or for a $200 bottle of wine than for a $15 one. The work envolved is basically the same.

And. finally what scale do I use at the bar where I wait, sometimes, 5 minutes to get a bartender to crack open a $5 beer. The service is better than that at McDonalds the work seems harded and they don't ask for a tip.

 
At 8:09 AM, January 23, 2008, Anonymous Anonymous said...

I HAVE DRIVEN A CUSTOMER SHUTTLE VEHICLE FOR A LOCAL CAR DEALER FOR OVER 2 YEARS AND HAVE NEVER RECEIVED A TIP!!!

WHY IS THAT?

 
At 9:50 PM, March 16, 2008, Anonymous Anonymous said...

it is probably because people will only see you once or they expect the service. I used to open doors at an office building and in a whole year I didn't get tipped once!!!

Did you know they don't tip in Australia.

when I was there I left a tip on the bar and the bartender just looked at it and kept going.

I work at a school and I don't get tipped for my service!!! so why should I pay a waitor who might get paid more than me (in california)

plus, if each table gives them 10$ or 5$ they will make 25$-40$ an hour.

LET'S BOYCOT TIPPING!!!!

 
At 2:54 PM, April 22, 2008, Anonymous Anonymous said...

you are all wrong-the purpose of waitstaff is to bring you your food-that is their job description-why should I "pay" them to do their job? It is not my fault that the restaurant code was written as to allow owners to not have to pay a decent wage

 
At 8:59 PM, April 14, 2011, Anonymous Anonymous said...

i dislike tipping. they're paid to do that particular job, so why do we have to "reward" them for it? Also, tipping in the long run only cultivates partiality. They wont bother attending to those who did not give a big tip. Also, tipping only makes customers feel awkward and embarrassed.

 
At 6:10 AM, November 13, 2011, Anonymous Anonymous said...

I think it's time to acknowledge tipping for what it is: or better yet, what is isn't. What other industry forces the patron to directly pay the employee, which then excludes the employee from paying taxes, contributing to social security and also excludes the employer from doing the same? The idea of a gratuity has now escalated to a mandatory service charge, having little to do with the professionalism of the staff or the quality of the food. How many menus or signs do you see now that declare parties of 5 or 6 will automatically be charged 18 or 20%?? Doesn't sound like a tip to me! Waiters and waitresses are not victims- they've chosen a job with flexible hours, split shifts, in social settings with the hope they can pocket a bunch of cash if they work hard and the place is busy. The employers should be held accountable to pay minimum wage or more like any other employer!!! The waitstaff isn't working on commission! A number of posts have mentioned it, and I agree: why should we tip on the cost of the meal when the motion and attention is the same for the $10 burger or the $35 steak? The real victim here is the customer. IF you don't pay the 'protection' fee, you can rest assured that your reputation will precede you and you WILL get poor treatment along with something repulsive happening to your food before it leaves the kitchen.
PS I waitressed for 6 years and owned two restaurants for 15 years- I paid more than minimum wage to my employees.

 
At 1:50 PM, November 14, 2011, Anonymous Anonymous said...

Most people stating that they should not have to tip are just cheap. I used to be a bartender and I will tell you that if you don't tip, then you don't get good service. If I walked into your establishment and disrespected you, then I probably wouldn't be treated very well either. There are enough decent people out there that I don't complain about how much I make, but for those of you that are complaining about paying a small amount for good service, in my eyes you're just looking for an excuse not to have to tip.

 
At 11:39 AM, March 21, 2012, Anonymous Anonymous said...

I have read every comment, and according to all those tipping supporters here, I can summarize their logic into:
1. They do a good job, so they deserve tipping.
2. Tipping is needed to maintain service quality.
3. They get low paid, so they need tipping.
4. Government assumes they get tips, so they should get tips.
5. If you don't tip, then should go somewhere else.
----
In my opinion, these reasons totally don't make sense at all. If reasons 1 to 4 are valid, then every job should use this system to make things fair. Let's go protest today and make the government assumes everyone gets tips from customers/bosses. Since this is unlikely going to happen, maybe I should open a restaurant that does not allow customers to pay tips but still has good service quality. That's like a 15-20% discount every day, I'm sure I'm going to get a lot of customers.

 
At 3:57 PM, June 22, 2012, Anonymous Anonymous said...

I like the last comment from March of 2012. I was a server and bartender for thirteen years. When I was a waitress and ran from one end of the building endless times for many tables, 15% of ten dollars equaled $1.50. When I bartended, I turned around filled a mug or flipped some bottles for thirteen seconds and the ten dollar drink generated a tip of $2 or more. AND the waitstaff had to tip me ten percent of the drinks I made for them. Now, on the flip side, when I worked in kitchens grilling and plating food, I was just as busy as the staff on the floor but I received an hourly wage. When I was a medical assistant, and we saw one hundred patients a day, I was slammed busy too and received an hourly wage. Tipping is a way of giving employers a break AND it makes the employee (hopefully) provide excellent service. I always provided exceptional service whether it was a tipping job or not. I hate tipping bellman. I will carry my own bags. Why should I have to tip you because you work for minimum wage? Get a better job. Why should I have to tip a taxi driver who owns his own vehicle? Why? Why? Why? Someone will respond and say I'm ignorant but I completely believe that it is old fashioned and that employers should be responsible for hiring people that ACTUALLY DO a good job and don't need incentives to do a good job....like everybody else who has a non tipping job....like the cashier at the supermarket. She gets minimum wage. Do we have to tip her now? I think it's ridiculous.

 
At 9:15 PM, December 25, 2013, Anonymous Anonymous said...

Too much tipping. Everywhere you go its more and more. Then if you try to avoid going out , you still have the mailman, postman, water guy, pool guy,recycling guy,house cleaner,gardener. They all expect tips on the holidays. Then the bus boys , and the host of your favorite restaurant. Then everyone at the golf club. Its getting annoying.

 

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