The Tipping Point: The Economics of Taxi Fares
gsb.stanford.edu
gsb.stanford.edu
That, and cultural forces in some political circles (which are fairly popular in New York) that encourage tipping to make up for what are perceived as unfairly low wages. It's an instance of people attempting to put their money where their mouth is, so to speak.
1. 20%
2. 25%
3. No tip
4. Custom tip
Dark patterns.
In a more brazen example I've been promoted to take my seat and use a qr code to order, it then requires me to pay up front on my phone (while providing my PII in the form of an email and phone number), and then asks me to tip before I've even had a server so much as introduce themselves or bring me water.
I'm all for servers making a living wage and paying higher prices to support it, but the current path this seems to be taking is really an unpleasant experience as a customer.
We got to this because service worker wages grew slower than necessary-for-life expenses like food, shelter, medical care, childcare, education, etc.
Meanwhile, many professional wages grew much faster than all of those things.
This is also the reason for why many ski towns in 2022 are unable to find enough staff to keep either the resorts, or the restaurants open. Nobody working those jobs can afford to live in those towns anymore, so you get a bunch of millionaires going off to vacation in their winter dachas, only to discover that there's nobody there to cater to them.
When restaurant servers don't get any tips it makes steady-wage jobs like warehouses or grocery stores relatively more appealing compared to customer-facing jobs.
Not a great cycle.
Tips are better for the business, because it lets them price-differentiate, and thus serve more customers. The more meals a restaurant serves, the more money it gets, regardless of how well or poorly the customers tip.
Over the past 40 years, businesses had a lot more bargaining power than service workers, and have obviously optimized their operations in a way that benefits their bottom line.
If you don't like these outcomes, you have a few options.
1. You can curtail business bargaining power by empowering workers.
2. You can curtail business bargaining power across the board, by raising wage and benefit floors through legislature.
3. You can curtail the rising delta between service wages and living costs, by having someone else (the middle class, the rich, corporations, Uncle Bezos, importers, ???) pay for the difference.
4. You can curtail the rising delta between service wages and living costs, by setting price ceilings on living costs through legislature.
5. You can curtail the rising delta between service wages and living costs, by bringing costs down, via creating a competing low-cost provider through legislature.
... Or you can shrug your shoulders, and just pay your 20-25% gratuity for the exact same level of service that used to earn a 10% gratuity.
It doesn't make it good, at a system level.
This seems like a price stickiness problem. If there’s demand from tourists buy food, but not enough staff, the restaurants can raise their prices and raise the wages they offer. At some point, either demand to go to restaurants goes down because people don’t want to pay (so the staff aren’t needed), or wages increase enough that the staff can afford to live. The end state isn’t peachy for everyone (the ski area becomes a place that only the most wealthy can afford to visit) but at least the problem of understaffing is solved.
Isn't a dacha a summer house?
Since it's an Eastern European term, and since winter in much of Eastern Europe sucks, it's commonly associated with a seasonal summer home - but can refer to any vacation property.
1. Towns are located in space constrained location that you mostly want to reserve for paying guests 2. It is a seasonal business and cannot guarantee wages throughout the year 3. The jobs can be very hard to do 4. A large portion of the staff is full of young people who want to ski a lot and make money to support the lifestyle
In fact, ski towns and resorts do much more for workers than you realize
1. Beyond wages, you get subsidized housing and food either on prem (If your job is crucial enough) or in the nearby towns 2. Resorts pay for a continuous well oiled public transport system better than all of the country, mostly to make sure the employees can come in on time very easily. In certain locations, these rides are free or subsidized to employees 3. For the young kids that take up jobs on resorts because they just want to ski for a couple months, if they're employees, they get access to the lifts and other perks that supports their hobby. 4.Some resorts also guarantee year long pay and better benefits if you are one of the specialized staff (the person who operates the snow plow up the mountain)
Ski resorts rely heavily on H2-B visas (temporary foreign workers) but as more and more companies recognized the benefits of such workers, the total number of applications grew far beyond the available visas... meaning ski resorts get fewer and fewer successful applications granted.
Epic Passes have significantly lowered the cost of a season ski pass. Getting a free pass was a big part of the wage equation when such passes were very expensive -- less so when they only cost about 700.
Since the pandemic, housing prices in secondary/tertiary locations has exploded, more than in central cities. Lake Tahoe area, for example, is through the roof... decent housing is in such demand that it's unaffordable.
20% is an easy mental calculation, so that's what I do most often these days. I round up to the next dollar or sometimes next multiple of 5 depending on the total amount of the check.
The graph at the bottom of this article may be interesting this context, it's from 2014, but it's all I could find with a quick search: https://www.epi.org/publication/waiting-for-change-tipped-mi...
The tipped minimum wage hasn't changed since 1991. At around 88-89, the difference (in 2014 dollars) between tipped minimum wage and the minimum wage was 40% in 2014 it was 71%.
That depends on the state. For example, all west coast states have the same minimum wage regardless of tipped or non-tipped. See https://en.wikipedia.org/wiki/Tipped_wage
> In the state of Alaska, California, Minnesota, Montana, Nevada, Oregon, Washington, same minimum wage are applied for both tipped and non-tipped employees. Tips collected by employees in these states will not offset employer's obligation to pay the wage, and tips is the additional income beyond the wage paid by employer.
You might tell your low tipping friend they’re being rude, driving the bottom end up, making average higher, meaning a really generous tip has to be even higher.
What constitutes rudeness is evidently more variable than I realized. Even among friends.
Maybe you mean to say that the base hourly rate was not inflation adjusted?
/s because the ship has sailed.
It amazes me that people can't calculate this, even roughly. Its a tip, it doesn't need to be exact
However, as I've become more wealthy, I think of it as a (happily paid) extortion tax. _Fight Club_ taught me that the service class can anonymously hurt me. I strive to be overly polite and non-demanding, and tip 20%+ to be the good customer and avoid any vengeance.
I'm not cynical about much in life, but with tipping, I view it as cheap insurance.
Another commend focused on the difference between median wages and waitstaff wages - in my mind I tip more not because they make less, but because I have more discretionary income.
Now tips are requested upon payment before service rendered. In front of workers and next customers. Minimum wage subsidies passed on to the consumer through social coercion, and maybe some insurance that nobody will spit in your coffee after you pay (but do the barista and the cook actually know how much you tipped?)
AK, CA, MN, MT, NV, OR, WA
So no principled justification to tip in those places, unless you like to tip for every service for some reason.
[1] https://www.dol.gov/agencies/whd/state/minimum-wage/tipped
While they may make minimum wage, in this day and age, minimum wage is well below what you might make otherwise at a non-tipping establishment. Tipping is still expected at restaurants in Washington state, and is still the main source of income for most servers (the minimum wage they earn is less than the tips they receive, and if it weren't for tips, they wouldn't bother doing the job for minimum wage).
I'm against the requirement to tip as a way of doing business, but will do it as long as it is expected. Ideally, we'd do things more like Europe or Japan.
However, these days, everyone barring McDonalds asks for a tip. I eat/take out less because of it, but I'll tip at least 10% even if there is no service involved.
* Buying social prestige amongst your group by showing generosity.
* Buying better service by showing generosity.
Both these result in motivation in favor of tipping more and against tipping less. Both of these require your tips to be above average, and not everyone can be above average.
What makes it somewhat tricky is that tipping to show generosity is a type of virtue signalling. And virtue signalling generally doesn't work if you admit you are doing it for self serving reasons. Since the best liars believe their own lies, our brain is resistant to acknowledging that these are the true reasons behind tipping. It prefers to pick justifications that align with the virtue being signalled.
When I was young my dad pointed this out to me when it would happen on restaurant receipts, and then I'd have to listen to him tell the waiter who clearly did not care. But especially now, nearly all of the suggested tip amounts are calculated after tax is included. After seeing it done so much I think this has become the norm, and don't even check the pre-tax vs post-tax math anymore.
In my experience, I'd say half the bills I get have suggested tips and of those I can count on one hand how many suggested the tip on post tax amounts. I used to give an exact pretax 20% tip, just on principle, but one day just I realized it was kind of silly to worry over such little amounts. Forget principles, the day I can't afford to tip well is the day I can't afford to dine at a restaurant.
I suppose that makes sense in certain cases (eg. you getting appetizer + drink + main + desert vs just a main), but utterly broken in others (eg. you getting a $15 main vs a $25 main). If tips were truly based on service it'd be a flat fee per plate or something, that varies per restaurant.
When a restaurant brings a bill that's six times larger than the one to the next table, that's usually because twelve people sit at your table and need service, and two people do at the next.
Isn't anything that increases the wages of workers via increased tips definitionally taking money away from consumers? (If you argue that they get $1 of utility by not having to think about the amount to tip, you might not be taking utility away from them, but you're still taking money away from them.)
Tipping, at a minimum, is social grease, and to the extent that you want it to be, redistributive economics with near zero administrative overhead.
The "zero administrative overhead" also makes it massively unfair. Why does the waiter at a fancy restaurant make hundreds per night in tips, but the grocery clerk make $0?
Then you get into the naked racism, ageism and sexism that tipping exposes in who gets tips and what the tipping professions think of those various groups too.
Move on to later in life when you have better jobs, and the entitlement of the tipping classes and tipping alumni makes you eye roll inside because you never had that favor.
There are biases of course. Beautiful people get better tips.
That said there’s one restaurant near me which uses Toast, which makes the dining experience so much nicer imo. I just ask for the receipt, scan the QR code with my phone, pick one of the suggested tips and pay with apple pay. I wish every restaurant used it
That seems more than a bit high..$1 for something that takes 10-30 seconds max, assuming you can't do it in your head and pull out your phone calculator?
That assumption seems to be quite a stretch. Naively I would think that major drivers for this behavior are saving time and comparatively terrible custom tip experience.
Personally I love doing mental math, but still use preselected tip in situations with external pressure. For example when there is a line of people behind me in a coffee shop or I am trying to get out of taxi fast so the driver is not waiting on me.
It's bending over backwards to promote how tipping is actually for the tipper's benefit. And that recommending large tips via touch screen menus is so helpful in saving them the time to do mental math.
Then the author places an arbitrary value of $1 on that mental math (???) to exclaim that large suggested tips saves the passenger both time and (fictional) money! Welfare has increased by more than 200,000 (completely made up dollars) per day!
Seriously, wtf, Stanford Business?
Why? Calculating a tip isn't something that has a failure state because even if you give the wrong amount it won't matter. On top of that the exercise of calculating the tip is beneficial for your long term mental acuity.
I'm not sure why doing a simple calculation that doesn't benefit me and has no failure state is a benefit. It's a benefit for the tippee maybe, but not the tipper.
It's not a lot of effort, but $1 also isn't a lot of money.
>On top of that the exercise of calculating the tip is beneficial for your long term mental acuity.
If you can honestly say that you think most people enjoy doing math, I don't know what to tell you.
It's primary value is to the person being rolled because they aren't paying for anything.
Automating something people weren't getting laid to do provides value to someone else not the person paying.
Maybe it's not controversial so much as misguided and looking at the picture from the wrong perspective. Who is it providing value to? What did that person save through the automation and how much is that worth if you actually parse out how many such "value periods" they experience in a day.
The idea that a very simple division question is worth $1 when everyone has a cell phone they already paid for in their pocket to do division for them is ludicrous when you realize there are tens of thousands of such time periods in a day but very few people are making tens of thousands of dollars a day.
Let's say you took 10 seconds to calculate it which is generous and also time to lunch it into a phone. There would be more than 36 thousand of such time/labour units in a given twenty four hour period. Unless you hang around with CEO's you aren't making 36 thousand a day to hand it out so easily.
$1 for nothing or value is a lot ofoney.
Most people don't take home that amount ($250k/year). Would hope most people could do the math in under 15 seconds as well, doubling that rate. A far more reasonable "value" would be 10 cents.
The article plausibly establishes that tipping is a cultural norm, hence people wish to tip. It establishes a threshold beyond which the rider will manually enter a tip rather than use the menu from statistics from millions of rides. It derives the “arbitrary” $1 amount from the difference in tips once the manual methods are used.
I don’t see any methodology issues on the surface.
Nobody is rationalizing a larger tip saying, "I will tip more to avoid doing mental math." What is happening is they are busy getting out of a cab and being forced to either spend a minute or two fighting an annoying touch screen to enter the amount they'd like to tip, or to just give in and give 20-30%.
Note that suggested tip amounts did not center around the cultural norm of 20%. Instead, that is the lowest suggested tip. This is weaponized behavioral economics put to use, in this case to push up tips.
The fact this is turned into a paper like this shows the disconnect between reality and economics research.
To compare and contrast, I could see a skilled growth product design expert looking at this data and say, despite an existing cultural norms of 15% tipping, through our UX design we have altered behavior away from the norm by making lower tip options difficult and time consuming to choose.
I am not even sure if this is even an economic paper. After all, Donkor is an assistant professor of marketing at Stanford Graduate School of Business, and not in the economics department.
More like feel obliged to tip.
I LITERALLY wish to tip when I go to restaurant. Some of that is cultural norms, some of it is knowing the wait staff is underpaid, some of it is signalling, etc.
That in no way takes away from the fact that I desire to give the tip, it only explains why I feel that way.