3 ms·

It isn't that simple, this has been tried many times at restaurants in my city. Raising prices 20% and eliminating tipping reduces employee income even though i

It isn't that simple, this has been tried many times at restaurants in my city. Raising prices 20% and eliminating tipping reduces employee income even though it is nominally revenue neutral because it changes customer spending behavior. Employees don't get paid a 20% service charge for money customers don't spend. The assumption that the customer is not influenced by the structure of the transaction if the final bill would be the same does not hold up empirically. This is not an intuitive outcome, I don't think either restauranteurs or employees expected it when it was first tried, but the result was replicated many times. Since the market for good employees is competitive, restaurants that replace tipping with a 20% service charge have more difficulty finding and retaining employees. Most of the restaurants that tried this here eventually abandoned it because employees were quite reasonably unhappy about the reduced income. It is a fascinating example of the structural complexity of even relatively simple economic transactions.

fredophile 5y ago
Has it really been tried? I know individual restaurants have tried it but I can understand customer confusion when one place includes the amount by default but most don't. I think you'd need to do this across a reasonably large geographic area, such as a complete city, to give it a proper test.
- dboreham 5y ago
  Seattle.
  - fredophile 5y ago
    I assume you're referring to the newish $15 minimum wage. A search for "Seattle restaurants no tipping" gets me a number of articles discussing the subject. From reading them it sounds like Seattle is now a mix of restaurants that discourage tips, restaurants that discourage tips but added a service charge, and restaurants that continue to accept tips. There also seem to be places that have raised prices along with these changes in tipping. I'd note that the places that raised prices seemed to raise them to also cover other increased costs besides just labor. It doesn't seem like Seattle has uniformly embrace no tipping in bars and restaurants.
    - jandrewrogers 5y ago
      I lived in Seattle through this grand experiment and know several restauranteurs personally. The no tipping experiment became trendy several years back, with many restauranteurs converting their restaurants including at many of the restaurants I frequent. It was actually quite jarring because so many restaurants made the transition at around the same time. As a consumer, I simply adapted. However it was quickly reversed because it produced poor results per the telling of both the restauranteurs and employees. At this point, it is experimentally "settled science" in Seattle; you'd be hard-pressed to convince people to try it again given how poorly it went last time.
  - ahepp 5y ago
    Every single place in Seattle with a square terminal will turn that thing around in your face and ask for $2 or %20, whichever is higher. Even if the place is takeout only... hell, even all kinds of places that aren't traditionally tipped.
gumby 5y ago
How about raising minimum wage for restaurant staff to the same level of everyone else and eliminating tips? The federal minimum wage for jobs with tips is $2.13 per hour.
- jandrewrogers 5y ago
  That is not relevant. The statutory minimum wage for jobs with tips where I live is $15 per hour (it is higher without tips). My examples occurred at restaurants where waitstaff expect to make upwards of $40 per hour. They aren't poor in any meaningful sense. The switch from tipping to a service charge anecdotally reduced their income by ~10%, they still made multiples of minimum wage. If your employer arbitrarily reduced your income by 10% you'd complain too, and in this case the employer wasn't pocketing the difference because the difference was simply lost. It was basically lose/lose for the employer and employee. That's why it isn't popular.
  - gumby 5y ago
    You’re saying the average tip is over 20%?
    - jandrewrogers 5y ago
      While the average tip percentage may be 20%, the weighted average is >20% because the distribution is not uniform. The people that spend the most money also tend to tip the highest percentage. It is not unusual for financially comfortable regulars to consistently tip 25+%. For people that are cost sensitive and may tip say 15%, a fixed 20% surcharge is effectively a price increase. This social dynamic of tipping 25+% is an expression of patronage for their favorite restaurants, no different than donating to the local museum. It isn't about the cost of the food per se. That said, this is probably more pronounced in regions that have a strong restaurant-centric culture like the Pacific Northwest.
chillwaves 5y ago
How many people working in a restaurant get tips? I am sure there are winners and losers, but on the balance, paying a fair wage beats tipping.
- refurb 5y ago
  It depends on the restaurant, but I know plenty of friends who would be screwed by eliminating tipping. On a busy night they could take home 2-3x their base rate in tips. Bumping up their pay by 50% and eliminating tips would be worse for them.
geodel 5y ago
> Raising prices 20% and eliminating tipping reduces employee income even though it is nominally revenue neutral because it changes customer spending behavior. Employees don't get paid a 20% service charge for money customers don't spend. This seems right thing to me if customer know beforehand the cost of eating out. I often receive these advertorials in mail about food festivals etc admonishing customers to be generous with restaurant pop-ups to add at least 20% tip and order extra food and drinks so that restaurants make money. It could be just me this thing pisses me off to stand in line for re-heated food and order extra stuff which I do not want for the privilege of not getting called cheapskate or not having someone spit in my food. > Most of the restaurants that tried this here eventually abandoned it because employees were quite reasonably unhappy about the reduced income. Gouging money from customer that they did not plan to spend does not seem ethical to me. I don't get how employee welfare becomes direct customer's responsibility instead of employers'.
Fnoord 5y ago
A more simple explanation to the problem is that customers, consciously or not, calculate a socially enforced tip within the price. Even during the time this was changed. I am not against tipping. I am against mandatory tipping. I know a hairdresser which costs me 17 EUR, and I know one which costs me 26,50 EUR. I tip the 17 EUR one 3 EUR, and the other one 0 EUR. Since COVID-19, the 17 EUR one has mandatory hair washing which is IMO bullshit. Now it costs 19 EUR. They get 1 EUR tip. The 26,50 EUR one does not require the mandatory hair washing which makes my preference for the cheaper one (its a slightly longer travel) less my preference. Anyway, mandatory tipping is part of the final fee and should be processed as such (including taxes). Simple as that. It isn't my responsibility to care about all kind of service fees.

fredophile 5y ago

Has it really been tried? I know individual restaurants have tried it but I can understand customer confusion when one place includes the amount by default but most don't. I think you'd need to do this across a reasonably large geographic area, such as a complete city, to give it a proper test.

dboreham 5y ago
Seattle.
- fredophile 5y ago
  I assume you're referring to the newish $15 minimum wage. A search for "Seattle restaurants no tipping" gets me a number of articles discussing the subject. From reading them it sounds like Seattle is now a mix of restaurants that discourage tips, restaurants that discourage tips but added a service charge, and restaurants that continue to accept tips. There also seem to be places that have raised prices along with these changes in tipping. I'd note that the places that raised prices seemed to raise them to also cover other increased costs besides just labor. It doesn't seem like Seattle has uniformly embrace no tipping in bars and restaurants.
  - jandrewrogers 5y ago
    I lived in Seattle through this grand experiment and know several restauranteurs personally. The no tipping experiment became trendy several years back, with many restauranteurs converting their restaurants including at many of the restaurants I frequent. It was actually quite jarring because so many restaurants made the transition at around the same time. As a consumer, I simply adapted. However it was quickly reversed because it produced poor results per the telling of both the restauranteurs and employees. At this point, it is experimentally "settled science" in Seattle; you'd be hard-pressed to convince people to try it again given how poorly it went last time.
- ahepp 5y ago
  Every single place in Seattle with a square terminal will turn that thing around in your face and ask for $2 or %20, whichever is higher. Even if the place is takeout only... hell, even all kinds of places that aren't traditionally tipped.

gumby 5y ago

How about raising minimum wage for restaurant staff to the same level of everyone else and eliminating tips? The federal minimum wage for jobs with tips is $2.13 per hour.

jandrewrogers 5y ago
That is not relevant. The statutory minimum wage for jobs with tips where I live is $15 per hour (it is higher without tips). My examples occurred at restaurants where waitstaff expect to make upwards of $40 per hour. They aren't poor in any meaningful sense. The switch from tipping to a service charge anecdotally reduced their income by ~10%, they still made multiples of minimum wage. If your employer arbitrarily reduced your income by 10% you'd complain too, and in this case the employer wasn't pocketing the difference because the difference was simply lost. It was basically lose/lose for the employer and employee. That's why it isn't popular.
- gumby 5y ago
  You’re saying the average tip is over 20%?
  - jandrewrogers 5y ago
    While the average tip percentage may be 20%, the weighted average is >20% because the distribution is not uniform. The people that spend the most money also tend to tip the highest percentage. It is not unusual for financially comfortable regulars to consistently tip 25+%. For people that are cost sensitive and may tip say 15%, a fixed 20% surcharge is effectively a price increase. This social dynamic of tipping 25+% is an expression of patronage for their favorite restaurants, no different than donating to the local museum. It isn't about the cost of the food per se. That said, this is probably more pronounced in regions that have a strong restaurant-centric culture like the Pacific Northwest.

chillwaves 5y ago

How many people working in a restaurant get tips? I am sure there are winners and losers, but on the balance, paying a fair wage beats tipping.

refurb 5y ago
It depends on the restaurant, but I know plenty of friends who would be screwed by eliminating tipping. On a busy night they could take home 2-3x their base rate in tips. Bumping up their pay by 50% and eliminating tips would be worse for them.

geodel 5y ago

> Raising prices 20% and eliminating tipping reduces employee income even though it is nominally revenue neutral because it changes customer spending behavior. Employees don't get paid a 20% service charge for money customers don't spend. This seems right thing to me if customer know beforehand the cost of eating out. I often receive these advertorials in mail about food festivals etc admonishing customers to be generous with restaurant pop-ups to add at least 20% tip and order extra food and drinks so that restaurants make money. It could be just me this thing pisses me off to stand in line for re-heated food and order extra stuff which I do not want for the privilege of not getting called cheapskate or not having someone spit in my food. > Most of the restaurants that tried this here eventually abandoned it because employees were quite reasonably unhappy about the reduced income. Gouging money from customer that they did not plan to spend does not seem ethical to me. I don't get how employee welfare becomes direct customer's responsibility instead of employers'.

Fnoord 5y ago

A more simple explanation to the problem is that customers, consciously or not, calculate a socially enforced tip within the price. Even during the time this was changed. I am not against tipping. I am against mandatory tipping. I know a hairdresser which costs me 17 EUR, and I know one which costs me 26,50 EUR. I tip the 17 EUR one 3 EUR, and the other one 0 EUR. Since COVID-19, the 17 EUR one has mandatory hair washing which is IMO bullshit. Now it costs 19 EUR. They get 1 EUR tip. The 26,50 EUR one does not require the mandatory hair washing which makes my preference for the cheaper one (its a slightly longer travel) less my preference. Anyway, mandatory tipping is part of the final fee and should be processed as such (including taxes). Simple as that. It isn't my responsibility to care about all kind of service fees.