There's little economic justification for tipping. But we can't stop doing it

While many consumers believe tips improve service quality, academics say there's little research to back that up. (AP)

Voters in Washington, D.C., decided this week to do away with the so-called tip credit, a miserable practice that allows employers — mostly restaurants — to pay dirt-cheap wages if workers also receive tips from customers.

California is one of just seven states that have eliminated the tip credit. New York and Michigan could be next. The nation’s capital may become the first major American city to take the plunge on an individual basis.

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Although the restaurant industry characterizes such moves as the end of the world as we know it, I say it’s a good thing.

Any progress toward getting rid of the archaic, outdated system of tipping is a step in the right direction.

“The practice is mostly a matter of custom that is rationalized as having economic logic,” said Paula B. Voos, a professor of labor studies and employment relations at Rutgers University.

In fact, she said, there’s little data to support the idea that tipping plays a meaningful role in motivating good service. Most servers do the best they can, and most restaurant patrons tip the same — 15% to 20% — regardless of service quality.

“Tips, although they are related to service quality, are not strongly related to service quality,” said Michael Lynn, a business professor at Cornell University who probably has studied tipping more than any other American academic (a conversation is peppered with him saying, “I did research on that”).

He told me it’s hard to imagine the United States following the example of most other developed countries and abandoning the practice — tipping is too deeply ingrained in our culture — but no one should kid themselves. If the goal is to significantly improve service, tipping is an inefficient economic tool.

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As Lynn wrote in a paper last year, “The jury is still out on how much it really motivates servers to deliver better service.”

Under Washington’s Initiative 77, which still needs the approval of city officials, employers no longer would be able to offer a crappy, sub-minimum wage to tipped workers.

Instead, they’d have to offer at least the city’s minimum wage, which the initiative gradually would raise to $15 an hour — the same level California will achieve by 2023.

Unless a municipality or state has directed otherwise, federal law allows businesses to pay tipped workers as little as $2.13 an hour. That’s the tip credit.

According to the Department of Labor, tipped workers make less than $3 an hour in 24 states and Puerto Rico. They make less than $5 an hour in 12 other states.

Restaurants — and many servers, especially those working in higher-end establishments — say this is fine because it reduces menu prices and allows, with tips, for decent take-home pay.

However, Initiative 77 shined a spotlight on some of the problems with the system. Supporters argued that tip credits prevent many workers from receiving a living wage. They also said some female servers are forced to endure sexual harassment in return for tips.

Opponents — mostly restaurants — insisted eliminating the tip credit would harm businesses, harm workers and harm consumers.

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“It’s a game changer,” said Kathy Hollinger, president of the Restaurant Assn. of Metropolitan Washington, which spearheaded opposition to Initiative 77.

One of the largest donors to the “Save Our Tip System” campaign was the National Restaurant Assn., which generally opposes any move to raise minimum wages.

Fun fact: The head of the National Restaurant Assn., Dawn Sweeney, received total compensation, including retirement benefits, of almost $4.5 million in 2016, according to the group’s Form 990 tax statement. If she worked a 40-hour workweek, that translates to about $2,150 an hour.

Every time I write about tipping, I hear from defenders of the system who say they want influence over service and appreciate being able to reward or punish workers depending on their ability to meet expectations.

There are two problems with this argument. The first, as noted above, is that people routinely tip even if service is bad.

Voos, the Rutgers professor, told me about a recent experience in which she received terrible restaurant service. “But I still tipped,” she said. “I knew it wasn’t the worker’s fault. It was management’s fault for not having enough people.”

I had a similar experience at a West Los Angeles deli last weekend. And I still left 15% because I’m not a total schmuck.

But I’d have been happier if the entire transaction had been more transparent, and if the restaurant, not the server, had been more strongly incentivized to keep my business.

That raises the second problem. If this was a valid way of interacting with service providers, we would routinely tip all people who perform a function on our behalf — auto mechanics, plumbers, nurses, FedEx employees, etc.

To say that we don’t tip certain workers because they’re just doing their job undermines the entire argument for tipping. Some workers deserve tips but others don’t? Some need to be motivated by tips to provide better service but others require no special favors?

Restaurants don’t want to do away with tipping because they’d have to either stick customers with an automatic service charge or raise menu prices — neither of which customers will abide, said Lynn.

He also said consumers like to tip when they feel they have a better sense of service quality than management. Thus, we like tipping restaurant servers but we’re cool with having an auto dealer cover a mechanic’s entire pay.

Lynn also observed that tipping reflects an awareness that some people aren’t as economically fortunate as others, not to mention a sense of self-interest. “You don’t want them spitting in your food,” he said.

Some high-priced restaurants have successfully introduced no-tipping policies. But it’s noteworthy that when the casual seafood chain Joe’s Crab Shack tried it in 2015, tipping returned less than a year later. Customers, the company found, preferred leaving 20% tips to menu prices that had gone up less than that.

As a consumer, I’d prefer uniform, straightforward transactions with all service providers. I want to judge a business by the totality of my experience, not just one worker’s performance.

I despise airline fares that hide all the extra fees, and telecom bills that similarly break out additional charges as if the phone or cable company has been forced to tack them on (in fact, such charges are often optional and simply reflect ordinary business costs).

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By the same token, give me menu prices that reflect a restaurant’s true costs, including labor, and pay restaurant workers a wage commensurate with the service they provide.

Tipping took root in the United States after the Civil War, mostly as a way for the wealthy to show off, and was almost immediately criticized as being undemocratic and un-American. An 1897 op-ed in the New York Times called it the “vilest of imported vices.”

That criticism is no less valid today.

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