The business of tipping

The has been a marked contrast between restaurant service in Britain and restaurant service in the USA - and by "the USA" I mean "pretty much any randomly-selected location in the entire United States of America" - at least as long as I've lived, and I suspect a lot longer than that. The general impression you get in a UK restaurant is that you're intruding on the waiting staff's quality time; to be fair, this has become less apparent recently as East European staff have proliferated in London and other major cities. I hope that the irony of British people in a restaurant hoping that their server comes from Tallinn, Riga or Wroclaw instead of Bristol or Derby is not lost on Nick "Chubby" Griffin. American restaurant and diner waiting staff can't, in general, do enough for you. This is clearly due to the tipping culture in America where good service is rewarded with good tips, and bad service punished with derisory tips. (Giving no tip could mean that you're a complete asshole, or just a furriner who doesn't know what's expect). Simple enough, yes?

Even in that seminal California film "Reservoir Dogs", tipping is intimately dissected by the participants:

Mr. White: You don't have any idea what you're talking about. These people bust their ass. This is a hard job.
Mr. Pink: So is working at McDonald's, but you don't see anyone tip them, do you? Why not, they're serving you food. But no, society says don't tip these guys over here, but tip these guys over here. It's bullshit!
Mr. White: Waitressing is the number one occupation for female non-college graduates in this country. It's the one job basically any woman can get, and make a living on. The reason is because of tips.
Mr. Pink: Fuck all that! I'm very sorry the government taxes their tips, that's fucked up. That ain't my fault. It would seem to me that waitresses are one of the many groups the government fucks in the ass on a regular basis. Look, if you show me a piece of paper that says the government shouldn't do that, I'll sign it, put it to a vote, I'll vote for it, but what I won't do is play ball. And this non-college bullshit you're givin' me, I got two words for that: learn to fuckin' type, 'cause if you're expecting me to help out with the rent you're in for a big fuckin' surprise.
Screwing over waitresses (I chose that word deliberately, and you should read about tips, sex and power at some point) is not done by anyone who regards themselves as a civilised human being. My median tip when eating out in the USA is 20%. Average is probably the same. Outliers are 25% (for really good service) and 5% (extremely rare, for British-quality service); if I'm anywhere near the latter, I'll be asking to speak to the manager in most cases. So everything's working as expected - or so I thought...

Back in 2008, San Diego restaurant owner Jay Porter decided to try an experiment: eliminating tipping in his restaurant and replacing it with a fixed (18%) service charge. So how did this work out? Conventional wisdom would suggest that the lack of incentive for better service would lead to a general lowering and flattening of the quality of service curve. After all, if removing tips worked well, wouldn't every restaurant do it?

The results make fascinating reading. Jay Porter's series of blogs on the results are compelling, and a rare case of actual data supporting the facts. What I found particularly interesting were the worked examples. I'd forgotten - because I've never waited tables - that the waiting staff are only part of the restaurant team. The problem is that, if you pay all your staff minimum wage (which is all the average restauranteur can afford), the waiting staff benefit strongly from tips but the kitchen staff do not, despite contributing just as much to the dining experience. Hence the approach in some states (e.g. NY) to pay the waiting staff much less than minimum wage, expecting the wage to be made up with tips, and redistribute that money to the kitchen staff; the waiting staff still do pretty well, but the curve is at least flatter. In other states (e.g. CA) you're not allowed to pay waiting staff less than minimum wage, so there is a customary "tip out" where the waiting staff share some of their tips with kitchen staff, but it's still ad-hoc and prone to abuse.

Porter's approach was to charge a fixed service charge and forbid tips. The service charge gets distributed reasonably equally around waiting and kitchen staff. Now I (and most economists) would have expected this to reduce overall quality of service, but in fact Porter claims this doesn't happen - good waiting staff don't pay much attention to tips throughout the service period, since they're too busy actually serving. It also removes an interesting perverse incentive on a server to maximise his or her tips at the expense of overall restaurant income; read the blog for the full details.

Equally interesting is the case where substituting a service charge for tips doesn't work - tips in a bar:

n a crowded bar, bartenders are expected to just say the price of a drink order to a guest — we wouldn’t present physical checks. And it was during the presentation of the physical checks that we could best explain the service charge/no-tipping concept. The check also had the policy explained on it, so guests had a pretty good chance of understanding what was going on.
Given that the line item service charge seemed like a lost cause, we switched to building the service cost into our pricing. This is known as service compris, and a lot of people advocate for it, but it wasn’t a success for us. With service compris, an $8.50 cocktail became a $10 cocktail on the menu, and that was a huge psychological leap for our market
Note that the factors which made tip elimination in a bar painful were to some extent due to this being a very unusual situation in a bar. One wonders how it might work out if a state or city banned tips all together in bars in favour of a service charge.

I'm still not convinced that Porter's service charge approach would work as proposed across the huge range of restaurants and diners in the USA, especially in dubious establishments where one or two really good waiting staff keep the business afloat. Still, he makes a compelling case that the conventional wisdom about tipping is not completely supported by the available data.

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