Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda

James Keating

Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda

james@jameskeating.net

Abstract Just as Westerners accept fluoride, a form of toxic waste with unreliable evidence of health benefits, in their tap water, they will also accept service industry propaganda that tipping is a tradition that rewards good performance. Tipping has neither been proven an incentive for service industry workers nor a benefit to society. Early Americans opposed tipping when it was introduced over one hundred years ago. China has a flourishing service industry without gratuity. Are tips just charity for low income employees or another form of indulgence long abandoned by the Catholic Church? This analysis, through literature review, attempts to uncover the economic mechanism behind tipping. It is an analysis that avoids the trivial questions of how much to tip and how to tip. Not only is there sufficient evidence to conclude that there is no need to tip at all but evidence shows it is oppressive and shifts business risk in the service industry to those who can least afford it.

Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda Western society has become accustomed to leaving gratuity for almost every kind of service. From the restaurant server to the taxi driver, every service employee seems to deserve additional compensation above and beyond their stated fee. Hairdressers, couriers, and even coffee shop attendants with the conspicuous tip jar in front of the cash register all seem to deserve more rewards for the service they render. There is no law in the U.S. that requires a patron to pay gratuity. There is no obligation to leave tips in a restaurant, taxi, coffee shop, or barber shop. It is a psychological compulsion, whether it be guilt or an expression of satisfaction, that drives the Westerner to leave a tip after receiving a service. In France, the customer is forced to leave gratuities in restaurants as the service charge is automatically included in the bill. (Friedman, 2002) Even worse, the tip is taxed at the VAT rate. U.S. Consumers should not become overconfident. In 2009, two college students in Bethlehem Pennsylvania refused to leave gratuity because of the bad service they received in a restaurant. The restaurant claimed that the gratuity was part of the bill and called the police. Even with the restaurant admitting poor service, both patrons were arrested and charged with theft. Six days later the charges were dropped but the case had already generated national attention and the couple later appeared on CNN. (Chang, 2009; Johnson, 2009) What is the tipping culture? Is the tipping system the apex of industrialized society and its incentive based compensation structure which motivates employees? Is it similar to sales commission? Would the service industry collapse if everyone quit leaving tips? What if there is a more logical although less altruistic explanation? Just as industry's toxic fluoride(Prystupa, 2011) is sold to local governments in the U.S. to put into tap water because it is allegedly good for teeth but really good for industry profits, tipping allegedly supports low wage employees and rewards them for service. In both cases the evidence contradicts these popular but sinister myths. The tipping culture is not a system designed to incentivize service workers and improve service quality but rather a system to oppress these workers by shifting the cost of labor to the consumer and business risk to the service employees. Tipping is a mechanism by which the service industry can justify low wages, externalize poor decision making, while lowering quality standards. It is not an equitable reward system unless the customer defines it as charity in which case gratuity provides the customer with psychological benefits. As a strictly financial or economic function it is a form of extortion using an indirect threat of bad service when the customer is already obligated to pay the advertised price. Lynn and Grassman (1990) concluded that customers tip to make a good impression on others, comply with social norms and expectations, and to maintain relationships with servers. Maintaining a relationship with the server is especially important for frequent customers. Patronage frequency impacted tip size, controlling for bill size and service in Lynn & Grassman's(1990) study. However, another study of 700 bill paying customers in 7 restaurants found that patronage frequency does not seem to impact gratuities, either directly or through its interaction with service and bill size. (Bodvarsson, 1994)

Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda Few ever question the rationale behind the gratuity mechanism in Western society. It is considered to be a traditional aspect of culture that must be religiously adhered to. It is a social custom, a rule of behavior, and a code of honor. Those not observing this unwritten rule are looked upon with contempt by service workers. Society imparts a feeling of guilt and shame upon those who do not comply. Just as the Catholic church once bestowed indulgences or remission of sins for those who would pay money to the church, society removes a persons guilt for being served by low wage employees if they leave a tip. Some leave tips because they sympathize with the service workers and feel obligated to supplement these workers salaries with gratuity. Some consider tipping to be reinforcement that ensures better service quality. Consumers' propensity to leave gratuity and the impact of tipping on service quality remain as implications for future research. Recent studies indicate that the earlier the tipping the greater the service effort (An-Tien & Der- Huang, 2007) but there is reasonable doubt as to the incentive value of tipping in restaurants. Servers are unlikely to perceive the relationship between service rendered and tips received. (Lynn & Graves, 1996) The relationship between service evaluation and tip size is too weak for tip data to be used as a performance indicator for service employees. (Lynn, 2000) Customers do not leave larger tips for better service as tipping is a function of habit more than performance evaluation. (Lynn & Sturmann, 2010) The psychological motivation for leaving gratuity is beyond the scope of this article and is a subject that deserves more investigation in research literature. Beyond the psychology of tipping is the financial and economic dimension which ultimately determines the trajectory of any business practice. After all, if tipping is a humanitarian function in society then it should be redefined as charity rather than a form of payment for service. If it is a business function then it is only logical to analyze financial and economic aspects which could potentially result in better organizational effectiveness and ultimately a higher return on investment for the service industry. Tipping results in higher return on investment but it is at the expense of customers and employees. Customers are made to feel obligated to leave a tip even though they may not be legally required to do it. Service workers are conditioned to look to the customers for their compensation rather than the industry management who pays them poverty level wages if the industry is unable to attract sufficient customers to supply a constant stream of gratuities. Many service employees receive low wages and depend on gratuity for the bulk of their income so there is always a chorus of service industry workers promoting tipping and attempting to justify a high rate of gratuity as a percentage of the service fee. Some will claim that tips should be 20% of the total bill. On the opposite side of the table, diners may claim that it should be no more than 10% of the bill. Whatever the case, there is no justification for leaving any amount for a tip. The price on the menu is the listed price and any pressure or perceived expectation of more money is false advertising on the part of the restaurant. Custom and tradition cannot be considered in a multi ethnic society or global economic context.

Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda Tipping is a feudal practice(Gill, 2011), a repugnant custom (Palmer, 2013), should be illegal(Dunn, 2013; Porter, 2013), or banned.(Peterson, 2013) In some industries service workers are fired for accepting gratuities. Servers in restaurants, porters, hairdressers, caddies, etc. are strangely exempt from laws and social norms that affect others. The plaintiff in Jusuf v. Southwest Airlines , an airline attendant, was fired for accepting a tip from a customer. (Fair Employment Practices Guidelines, 2009) When politicians receive a tip it is called a campaign contribution, doctors receive kickbacks, executives receive perks, and strippers receive tips. When a flight attendant receives gratuity it is grounds for dismissal. The distinction between gifts, tips, and bribes is confounding. The U.S. Department of Defense Joint Ethics Regulation which governs permissible gifts for government employees defines a gift as any gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value.(Fontanna & Hickey, 2005) A bribe is defined by the Mirriam Webster Dictionary as something that serves to induce or influence.(2013) Tipping is a recent phenomenon in the Americas in contrast to Europe where it has been practiced for centuries. Tipping in the U.S. also faced considerable opposition when it was first introduced. After the Civil War, wealthy Americans began traveling to Europe in significant numbers, and they brought the tip home with them to demonstrate their worldliness. But the United States, unlike Europe, had no aristocratic tradition, and as tipping spread like evil insects and weeds, The New York Times claimed in 1897 many thought it was antithetical to American democratic ideals. Tipping, and the aristocratic idea it exemplifies, is what we left Europe to escape, William Scott wrote in his 1916 anti-tipping screed, The Itching Palm. One periodical of the same era deplored tipping for creating a class of workers who relied on fawning for favors. (Wachter, 2008) If tipping faced such opposition in early America then many in the U.S. will be left wondering how this insidious form of institutionalized bribery came into being. It is difficult to pinpoint with any certainty exactly when tipping became mainstream in the Americas. Whether or not the service industry conspired to install this taxing custom on the people of the U.S. does not preclude it from conspiring to maintain it today. The tipping culture perpetuates a low wage work force.

Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda Service employees often receive low wages. According to the U.S. Department of Labor: A tipped employee engages in an occupation in which he or she customarily and regularly receives more than $30 per month in tips. An employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with the tips received at least equals the federal minimum wage. (U.S. Labor Dept., 2013) The current federal minimum wage in the U.S. Is 7.25 U.S. Dollars. So the worst the service industry can do is pay their employees a minimum wage. If an employee receives just one U.S. Dollar a day, except for February which has 28 days, they are tipped employees. Some states require the minimum wage to be higher than the federal rate but this small increase does little to change the outlook of this dismal situation. Without tips, an employer would be forced to pay at least minimum wage. In high volume areas, employers would have to pay the going rate which could be beyond their budgets. Nevertheless, if an employee receives even a paupers sum in gratuity revenue, the employer can pay them 2.13 U.S. dollars per hour, not even enough money to ride a bus home in most U.S. cities for their hour of work. The volume of customer traffic clearly affects the income of a tipped employee. If there are no customers then the employee becomes a wage slave, receiving a fraction of the mandated minimum wage as a myriad of taxes are deducted before the employee receives their payment. At least with tips, they are paid in cash which often goes underreported. Some would correctly argue that much of this tax will be returned at the end of the tax season. However, this still represents non interest bearing loan to the government that is being whittled away by inflation. Meanwhile, the minimum wage earner hardly surpasses subsistence levels and may even have to secure bank loans to support a meager standard of living. Of course some restaurants, bars, and hotels have significant business operations and the tipped employees are among the highest paid personnel in the business. This is the exception to the norm. The employees' income rises or falls based on management decisions. Even if revenue is high there can still be low tip revenue if the manager or owner hires too many tipped employees. The business can decompose into an internal competition which rewards aggressiveness and politics rather than customer service. Another example of businesses shifting risk to the tipped employees is when the management fails to choose a proper location for the business or advertise effectively. In this case, the employees bear the burden by receiving a low income. If there are layoffs then these employees will also be the first to be discharged. Tipped employees accept the risk of poor managerial decisions.

Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda If the business succeeds they are not guaranteed to share in the additional revenue as more staff can be hired further dividing the aggregate gratuity among more employees.Customers also bear the burden as internal competition or low morale can transform into apathy or reduced service quality. Studies show that there is also discrimination in tipping. Ayers, Vars, and Zakariya (2005) discovered racial disparities between black American and white American taxicab drivers. The research suggests that American blacks received less gratuity than their white counterparts. It is not only customers who profile and stereotype. Servers in restaurants profile customers and may adjust the level of service depending on their expectations of gratuity. Women, ethnic minorities, elderly, and foreigners may have a negative experience from receiving inferior service.(Lynn & Withiam, 2008; Porter, 2013) Another quality factor to consider is service time. Time is sometimes critical such as during the delivery of a package. However, couriers are typically not tipped even though they often carry large boxes to the door of the recipient. Sometimes these packages consist of several boxes with considerable weight. However, when someone delivers food to the customers door, such as pizza delivery, they expect a tip. Is this charity for the lesser paid profession as parcel delivery drivers are better compensated? Another time consideration involves comfort in a restaurant. Comfort in a commercial setting can be defined as a state of relaxation influenced by mood enhancing environmental variables, expectations being met, and absence of pressure. Pressure can be caused by time or space influences, annoying stimuli, and unpredictability of environmental variables. To illustrate this point, Western restaurants can be compared to Chinese restaurants. Tipping is a rare practice in China. There are a few restaurants which try to emulate Western practices by enforcing tipping but the tips must be included within the bill. The vast majority of Chinese service workers do not expect gratuity. To the Westerner, it may seem like there is no motivation for them to work. Actually, in China, service workers are paid just like the rest of the work force. Whether someone is a waitress or a doctor, a taxi driver or a financial consultant, they are paid a salary with no expectation of a tip. The form of remuneration for hairdressers is the same as that of flight attendants. However, in China, it is not uncommon to see people in restaurants playing games on a computer, playing cards, chatting with friends for a long time, or even sleeping. There is little if any pressure for them to pay the bill and leave during a restaurants hours of operation. This is because there is no tip. In contrast, tipped employees in the West are not rewarded for performing well. They are rewarded for turnover. The faster the waitress can get the customer out of the restaurant, the higher the turnover; hence, the higher their gratuity income.

Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda Western servers often harass patrons by asking them if they need additional food or drink. This not only accomplishes up sale of unnecessary items, it increases the total bill which is used as a basis for calculating tips. Finally, the harassment forces customers out of their comfort. Anything the customer was doing in their relaxed state has been lost as their concentration is broken. In a Chinese restaurant, patrons must often call the server to the table unless there is an obvious need to be filled such as an empty glass or plates that need taken away. Tipping is a system that oppresses service industry workers by shifting the cost of labor to the consumer and business risk to the service employees. Tipping is a mechanism by which the service industry can justify low minimum wage, externalize poor decision making, while lowering quality standards. Tipping is not an equitable way to incentivize service industry employees. Service industry employees are reluctant to oppose the tipping culture as that is often their primary source of revenue. However, a neutral observer need only analyze Chinese culture and compare it to the West. The service in a Chinese restaurant is similar to that in the West. The Chinese taxi drivers, hairdressers, and porters are equally determined to perform their jobs well. Gratuity is bribery. It is not an incentive but rather a disincentive. The tipping culture is not a modern method designed which motivates service workers to perform better. It is a vestige of the European feudal system where the rich could afford to shower a table with coins thereby getting better service. Today it is expected of everyone in the West so the tipping incentive has been diffused. When people can ignore service industry propaganda and refrain from leaving tips then the spell of social engineering will be broken. Next time a waitress says 20% tip the patron should ask for the reason. After all the price is clearly listed so where does the obligation to leave gratutity come from? Just because the waitress says so? When riding in a taxi, the Westerner should develop the Chinese mindset and just pay the price on the meter. Patrons should not let porters take their luggage to the hotel room and should never tip hotel maids. It is not the role of the customer to pay the employees of the business. If someone pays more than the price on the menu then it is nothing more than charity to help the service industry maintain hegemony over those who can least afford to defend their rights.

Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda References Airline Employee Fired for Taking Gratuities, Not Because of Her National Origin. (2009). Fair Employment Practices Guidelines, (644), 1-3. An-Tien, H., & Der-Huang, W. (2007). The Relationship between Timing of Tipping and Service Effort. Service Industries Journal, 27(1), 1-14. Ayres, I., Vars, F.E., and Zakariya, N. (2005). To insure prejudice: Racial disparities in taxicab tipping. Yale Law Journal, 114 (May),1613-1674. Bodvarsson, O. B., & Gibson, W. A. (1994). Gratuities and customer appraisal of service: Evidence from Minnesota restaurants. Journal Of Socio-Economics, 23(3), 287. Bribe [Def. 2]. (n.d.). In Merriam Webster Online, Retrieved September 24, 2011, from http://www.merriam-webster.com/dictionary/ Chang, D. (Nov 23, 2009). Couple Busted for Refusing to Pay Tip. In NBC Philadelphia. Retrieved September 27, 2013, from http://www.nbcphiladelphia.com/news/local/Time-In-Prison--70426052.html Dunn, E. (Jun 19, 2013). Why Tipping Should be Outlawed. In Esquire. Retrieved September 27, 2013, from http://www.esquire.com/blogs/food-for-men/why-tipping-should-be-illegal-15603180 Fontana, J., & Hickey, D. (2005). Illegal Gratuities and Gifts: Primer and Reminder. National Defense, 89(617), 48. Friedman, A. (2002). Tip for U.S. restauranteurs: Study European gratuity system. Nation's Restaurant News, 36(27), 60. Gill, A. A. (2011). Tyranny of Gratuity. Bloomberg Businessweek, (4258), 108.

Johnson, D. (Nov 24, 2009). Theft Charges Dropped Against No-Tip Couple. In NBC Philadelphia. Retrieved September 27, 2013, from http://www.nbcphiladelphia.com/news/local/Theft-Charges-Dropped-Against-No-TipCouple--71865807.html 8

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Lynn, M. (2000). Gratitude and gratuity: a meta-analysis of research on the service-tipping relationship. Journal Of Socio-Economics, 29(2), 203. Lynn, M., & Grassman, A. (1990). Restaurant tipping: An examination of three "rational" explanations. Journal of Economic Psychology, 11, 169-181.

Lynn, M., & Graves, J. (1996). Tipping: an incentive/reward for service? Hospitality, Res J, 20, 1-14. Lynn, M. & Sturman, M.C. (2010). Tipping and service quality: A within-subjects analysis. Journal of Hospitality and Tourism, 34(2), 269-275. Michael Lynn, Glenn Withiam, (2008) "Tipping and its alternatives: business considerations and directions for research", Journal of Services Marketing, Vol. 22 Iss: 4, pp.328 - 336 Palmer, B. (n.d.) Tipping is an Abomination. Slate. Retrieved September 27, 2013, from http://www.slate.com/articles/business/moneybox/2013/07/abolish_tipping_it_s_bad_f or_servers_customers_and_restaurants.html Peterson, K. (Jun 5, 2013). 5 reasons we should ban tipping. MSN Money. Retrieved September 27, 2013, from http://money.msn.com/now/post.aspx? post=54a75d58-55e8-44ed-9593-385604bfe455 Porter, J. (2013). Observations From a Tipless Restaurant, Part 6: Why Tipping Should (And May) Be Made Illegal. In jayporter.com. Retrieved September 27, 2013, from http://jayporter.com/dispatches/observations-from-a-tipless-restaurant-part-6-why-tipp ing-should-and-may-be-made-illegal/ Prystupa, J. (2011). Fluorine--A current literature review. An NRC and ATSDR based review of safety standards for exposure to fluorine and fluorides. Toxicology Mechanisms & Methods, 21(2), 103-170. doi:10.3109/15376516.2010.542931 Wachter, Paul. (Oct 9, 2008). Why Tip? In The New York Times. Retrieved September 27, 2013, from http://www.nytimes.com/2008/10/12/magazine/12tipping-t.html

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