Most foreigners traveling to the United States and Canada are shocked by the tipping culture. Few countries value tipping as much as do these two. But tipping has become such commonplace that it has lost its meaning.
Despite its regularity, tipping can still lead to discomfort and confusion. Why do we tip a hotel doorman but not the person behind the reception desk? Why do we tip a bag handler in the airport but not flight attendants? How much is enough for a tip? These questions have given many economists a hard time. Why are people willing to tip in addition to the fees they already pay? It’s probably the only voluntary action in economic activity that doesn’t seem to make both parties better off.
Tipping has become a widespread practice, whether it’s at restaurants or hotels or for valet service. Michael Lynn, a professor at the School of Hotel Administration of Cornell University, estimated that the tipping economy is worth about $40 billion, more than twice of the budget of NASA.
As a social norm that has existed for hundreds of years, tipping is meant to be a reward for great service. This idea indicates that the amount of the tip differs according to the quality of the service. That’s how the price system works, with high prices signaling high quality and scarcity and low prices hinting inferior quality or abundance. But here the price system fails—the amount of money that goes to tipping doesn’t distinguish great services from mediocre ones.
Consider a simple example that Bruce McAdams, a professor at the University of Guelph, gave in a TED talk: Most people tip 15 percent of the total in restaurants. Suppose a couple consumes a $100 bottle of wine. They add $15 on top of the $100 as tips to the server to reward them for opening the wine and pouring it into two glasses. But if they were to order a $30 bottle of wine, they would only leave a $4.50 tip. The tips in the first case are more than three times greater than in the second one, even though the service is exactly the same.
Additionally, tipping promotes discrimination. Lynn’s study shows that tips from black Americans are, on average, lower than those from white Americans. Servers learn this by their experience. As a result, many waiters resist being assigned to serve black Americans or deliver inferior service. If tips are determined by percentage, discrimination might appear too. Customers who shell out less money on the check are more likely to receive unfriendly service.
Tipping, especially in restaurants, is actually ruining the industry. The income disparity between servers and cooks is enormous because of tipping. McAdams said Canadian waiters and waitresses generally earn $20 to $40 per hour including tips while cooks earn significantly less at $13 per hour. Thus tipping attracts more people to come in the industry while cooks are discouraged. But we need to remember that food, not service, is the basis of the restaurant industry. It’s more sensible to tip chefs who are able to please your palate than it is to tip servers.
In Canada, waiters are paid minimum wage plus tips. But in the U.S., waiters are paid as little as $2.13 an hour. When restaurant owners rely on customers to help pay a large part of the salary for servicers, they shake off the responsibility of training servicers, which results in inconsistent service to customers. Inferior service might keep customers from visiting again. In Hong Kong, where the service industry is known to be one of the best in the world, restaurants and hotels usually charge a fixed service fee. In that way, servers feel that they are fully employed by the owners and get regular training about professional training. Companies should not assume that customers are going to directly contribute to their employees’ income. Tipping that is “forced” in this way should not be considered tipping at all.
