February 26, 2024

Here’s a Tip: It’s about Inequality

Karen sternheimer 72523By Karen Sternheimer

Many news stories about inflation have focused on tipping—sometimes called “tip-flation.” If you haven’t read any of these stories, you’ve probably paid for something when a tip screen came up, recommending a certain percentage for gratuity in addition to the amount due.

According to a recent Pew Research Center survey of nearly 12,000 Americans, respondents perceive that the pressure to tip has increased in recent years. Nearly half of respondents said that whether to tip depends on the situation, and 40 percent said that they didn’t like when tip amounts are suggested. The most common times when more than half said they left a tip included servers at sit-down restaurants, a hairdresser, and food delivery. Respondents were less likely to tip taxi or ride share drivers, or at fast casual restaurants or coffee shops.

Tipping has become a fraught topic; interviewees for this NPR story mentioned that it seemed silly to tip at a self-service check out or while buying fast food, but they also felt social pressure to tip. “I don’t want to be that person who doesn’t tip” seems to be a recurring concern. The underlying tone in stories like this is that “tipping is out of control.”

But tipping itself is just a symptom of a larger problem: wages are often too low for workers to be able to make a living, and employers can pass the increased cost of living directly onto consumers. According to the Department of Labor (DOL), the federal minimum wage for tipped employees is $2.13, which was last increased in 1991. Many states have higher tipped minimum wages, ranging from $2.33 (Wisconsin) to $16.28 (Washington state’s full minimum wage). While eight states do not have a separate minimum wage for tipped employees, 14 states maintain the federal minimum wage.

More than three-quarters of respondents to the Pew survey consider tipping as something that they base on the quality of service. We might think of a tip as an extra reward for excellent service, but for many workers’ tips are essentially replacing most of the wages paid by their employer. And less than excellent service might result from having too few workers, not the failure of an individual server or hotel housekeeping staff member.

As a college student, I waited tables one summer and experienced this first hand. I earned close to the current tipped minimum wage (it might have been $2.35 an hour), and often worked the breakfast or lunch shift at a hotel’s restaurant. I was sometimes the only server at breakfast, managing all the tables and running around trying to serve frequently frustrated customers.

Guests often yelled at me and sometimes left without tipping, despite the fact that I was doing my best and it was clear the restaurant was short-staffed. On one occasion, a table left without paying at all, and my manager said that their bill would have to come out of my pay. I’d regularly have to clean up after the kitchen closed, which was common—I’d earn a big $2.35 (before taxes) for my efforts. But one manager told me to clock out before cleaning up one day. I didn’t know that was called wage theft, but I also knew I wasn’t going to work for nothing (just practically nothing).

I was able to refuse in part because it was almost time to go back to college. I was living with my family and not paying for rent, utilities, food, health care, or other expenses. But most workers aren’t so fortunate. According to the National Restaurant, using U.S. Census Bureau data, restaurant workers do skew young, with about 30 percent between the ages of 18 and 24. But nearly two-thirds (63 percent) are 25 and older, and just over 7 percent are under 18. It is safe to assume that most of these workers are supporting themselves and family members.

I had a large table of friendly Australians come in for breakfast every morning for a week, and they never left a tip. On the last day, they apologized, saying that they didn’t realize that they were expected to tip, and would “take care of me” on the last day of their trip. That day never came. I was miffed at the time, but Americans might be surprised to learn that worker dependency on tipping is not as common in other countries. Tips might range up to ten percent for exceptional service in other industrialized countries, but employers in there often required to pay workers a living wage. According to the European Union’s commission on Employment, Social Affairs, and Inclusion (emphasis in original):

Better working and living conditions, including through adequate minimum wages, benefit both workers and businesses in the Union. Adequate minimum wages contribute to ensuring fair competition, to stimulating productivity improvements and to promoting economic and social progress. They can also help reduce the gender pay gap, since more women than men earn a minimum wage.

The role of minimum wages becomes even more important during economic downturns. Ensuring a decent living for workers and reducing in-work poverty is important during a crisis and also essential for a sustainable and inclusive economic recovery.

Ironically, America’s culture of tipping stems from Medieval Europe. In addition to enabling employers to pay workers as little as possible, it was a way of maintaining social hierarchies, especially racial hierarchies. As a 2016 report from The Leadership Conference Education Fund details:

Although the practice of ‘tipping’ dates to European aristocrats, America’s culture of tipping emerged on the premise of undercutting free African Americans from receiving equal pay. Prior to the emancipation of African Americans, tipping was not socially welcomed. It expanded in America as a way to demean and degrade African Americans as servants in what were considered “menial” jobs. It may be less visible to us now, but today’s $2.13 tipped minimum wage continues the legacy of a caste system by perpetuating racial and gender inequality, while dehumanizing millions of hardworking people. 

Tipping essentially requires low-wage workers to be subservient to customers, embodying the notion that “the customer is always right,” sometimes subjecting tipped workers to sexual and other forms of harassment.

So, what is the solution? If consumers feel burdened to tip, and tipped workers in many states are more likely to live in poverty, is eliminating the practice the answer? According to the Pew Research Center Survey, 72 percent of respondents oppose adding service charges to restaurant bills.

This Economics Policy Institute (EPI) blog post argues for eliminating the separate tipped minimum wage:

Research indicates that having a separate, lower minimum wage for tipped workers perpetuates racial and gender inequities, and results in worse economic outcomes for tipped workers. Forcing service workers to rely on tips for their wages creates tremendous instability in income flows, making it more difficult to budget or absorb financial shocks. Furthermore, research has also shown that the practice of tipping is often discriminatory, with white service workers receiving larger tips than black service workers for the same quality of service.

Tipping is about more than good service; it is about survival for some, and about replicating inequality for many. The EPI concludes:

According to the Quarterly Census of Employment and Wages, full-service restaurants in equal treatment states saw stronger growth both in terms of number of establishments and number of jobs compared to states with a separate, lower minimum wage for tipped workers…. Between 2011 and 2014, equal treatment states saw 6.0 percent growth in the number of establishments compared to 4.1 percent growth in states with separate, lower tipped minimum wages. Likewise, employment grew 13.2 percent in equal treatment states compared to 9.1 percent in other states.

Furthermore, higher minimum wages mean better working and living conditions for numerous workers in the region, and it will put more money in the hands of consumers likely to spend in area businesses.

Should we get rid of tipping culture? What should replace it?


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