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Are tips for better service conducive?

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DAVID FRANK began working for advice when he was 11 years old, delighting visitors to restaurants in New York with his magic tricks. As a teenager, he earned an average of $ 60-70 a night – not bad, but he wanted more. So he started reading a study on tips and found a study that shows that servers that left sweets at the end of a meal can increase their salary. He tried to hand the players a playing card at the end of his act, hoping the memo would convince them to part with more cash. It worked.

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Mr. Frank’s findings confirmed the idea of ​​tips as a kind of reward for outstanding service. This may seem simple, but a subsequent study with Michael Lynn of Cornell University, where Mr. Frank is now a student, found an opportunity for some dexterity. They found that performing a magic trick at the table also increases the tip for the waiters and waitresses who serve there, although they did nothing more than usual. While tipping may seem like a simple economic transaction, encouraging people to work very well, it turns out to be something else.

First, economists are baffled by the fact that too many people tip, voluntarily giving out cash for regular service when it is assumed that customers usually want to pay as little as possible for what they buy. But more inaccurate factors also seem to matter, such as the sense of gratitude that inspired Mr. Frank. A 2010 poll by Ofer Azar of Israel’s Ben-Gurion University in the Negev found that 85% of American dump trucks said they adhered to social norms, while 60% said they tip to avoid guilt (see Figure 1). .

During the pandemic, these vague factors appear to have intensified. Mr. Lynn noted that people tip more generously even when ordering takeaway food, while Sarah Conlisk of the Federal Reserve Board found that people traveling to affluent areas tip their taxi drivers more than before . It is believed that this actually spent money on danger, as tipping rates grew along with the number of hospitalizations with COVID-19; in Trump’s voting areas they grew less rapidly as risk perceptions may have been lower.

Having a pandemic or a magician standing at your table are just two of a number of factors that can affect tip size. The server may just touch the dump truck. When a waiter squats next to you at a table while taking your order, it often triggers higher tips. Good weather can also push for generosity. Race can be a more disgusting factor. A study of tips for taxi drivers found that black drivers received tips on average of 13% and whites – 20%. Another study found that female Uber drivers were tipped 10-12% more than men, but not over the age of 65 (see Figure 2).

Habits of tipping vary widely around the world. In America, where tips for eating in restaurants make up about 20% of bookmarks, some suspect that the history of racial inequality has reinforced this practice. In 1902, journalist John Speed ​​wrote: “Negroes, of course, take tips; they are expected to do so – it is a sign of their inferiority. But it was awkward for me to give money to a white man. “

In many European countries, a service fee is included in the bill, and customers don’t have to pay much extra, but they often round the figure, leaving a few coins or a modest bill on the table, which is an extra or two percent. In some Asian countries, tips are rejected. In Japan, for example, it is seen as an insulting hint that the recipient is similar to a beggar who desperately needs a handout. A similar attitude prevails in South Korea. In Hong Kong, tips at a restaurant are not usually expected.

In India and Africa, where the gap between the affluent middle class and the poor is often huge, tips are definitely to be expected. Some scholars have tried to see whether a stronger tea culture correlates with measurable psychological traits in different cultural settings. One study in 30 countries suggested that tips are more common in societies where inequality prevails and where the guilt of the wealthy is more acute. In some circumstances, it is the duty of customers to be more generous, thanks to the online rating system by which the server evaluates them. For example, in Doha, the capital of Qatar, users of travel apps fear that without a monetary tip their customers ’ratings will drop and it will be harder for them to catch taxis in the future.

The most obvious economic rationale for tipping is that it encourages the server to run better. But the logic of tipping as an incentive is far from solid. Most customers in restaurants are not regulars. A one-time customer won’t win in the future by leaving a tip at the end of a meal. But even regular customers don’t seem to use tipping bets to reward or punish the server. Mr. Azar says that if they did, their tips would increase or fall depending on the quality of service than in more conventional eateries. But he could not find such evidence. Even more surprisingly, the quality of service in countries like Japan and South Korea, where tips are extremely rare, is not noticeably inferior to service in America or Europe.

If tips acted as incentives, one would expect them to be more common in occupations where the customer repeatedly interacts with the provider. But this also seems to be the case, as many professions, such as dentist-hygienist, car mechanic or veterinarian, have no tea culture at all. In Mr. Azar’s survey, only 14% of Americans said they were tipped to avoid poor service in the future.

One study found that the quality of service explains the change in tip size by no more than 5%. In a study of trips using Uber, where only 15% of trips are given with tips, when explaining the size of the tips the characteristics of the passenger were three times more relevant than the characteristics of the driver.

Scam boss?

Tipping quite often benefits the restaurateur or business to the same extent that sometimes even more than the recipient of the tip. By enticing the customer with low initial prices, tips are obtained later – and sometimes do not even fully reach the intended recipient. Recently, online platforms such as Twitter, Facebook and YouTube have sought to retain the best talent on their own platforms, allowing their stellar “creators” to take advice, and the company sometimes keeps a piece to itself. Order a takeaway coffee or bagel in Washington or New York, and nowadays the server will most likely be spinning your tablet asking on the screen if you want to tip. Many people are embarrassed to refuse.

Tipping also transfers some of the risk from managers to servers, especially when 20% to 60% of a waiter’s income may consist of tips, as is often the case in America. If the business thrives, both management and servers will benefit because there are more tips. When a business weakens, server revenue falls along with total revenue. The degree of risk sharing varies by country. In Britain and Germany, for example, tips are not included in the minimum wage. But in France and some parts of America, where there is a “minimum wage with tips”, employees actually lose the first tip they earn, an employer who can credit them as part of the minimum. Another argument in favor of tipping is that customers are better at monitoring service quality than managers, so they know who should get the extra reward.

Tipping is also a way to avoid taxes – for the benefit of both bosses and servers. In Britain, the standard “optional” service fee avoids 20% of the value added tax that applies to the rest of the food. Tipping cash is pretty easy to hide from the taxman. In 2018, the U.S. Internal Revenue Service estimated that about 10% of the personal income tax understatement was due to employees not reporting income in tips, although this has become more difficult as tips are more often put on credit cards.

So who really benefits? Perception is often more important than reality. As long as servers believe their tips will decrease if their performance is poor, management will believe they are having the desired effect. A survey of 1,189 servers found that half said the quality of their service had a big or very big impact on the size of their tips. Attempts to replace tips with other pricing methods can worsen customer ratings. This came after the Florida-based Carnival Cruise Line refused to tip during its travels in the early 2000s in favor of a service charge. A study by Mr. Lina and Zachary Brewster of Wayne State University found the same effect in restaurants, especially in cheaper establishments. They suggested that better wages or better training help improve service, especially in more refined restaurants.

Hard to crack

Not that the practice was used everywhere. In fact, tips leave 20% of restaurant revenue for servers that interact with customers. This can frustrate posh restaurateurs in places like Washington and New York, where it is illegal to tip tips with kitchen staff, thereby diverting rewards from them. In 2015, Danny Meyer, CEO of Union Square Hospitality Group, tried to tip over at his restaurants on that basis. But after a painful increase in staff turnover, he decided to tip. Without it, he believed he would not be able to set attractive prices and maintain competitive salaries for his waiters. He struggled to manage a system in which customers felt obligated to say “thank you” only by voice but not by their wallet.

Critics say tipping is an unfair practice that forces workers to arrange favors, confuses customers about the real price they can expect to pay, and encourages tax evasion. Its champions say it’s an effective way to match incentives between bosses and employees, and a healthy way for a customer to express gratitude.

Despite all the shortcomings, Americans are willing to maintain this practice: in a survey of 60% of them said they prefer tips to modest service fees. Customers may be wrong that tipping improves service. Maybe they like to feel when they go out to eat that they are in control. And it can comfort servers when they think, albeit erroneously, that if they work better, they will be more generously rewarded.

https://www.economist.com/international/2022/01/15/do-tips-make-for-better-service

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