WEBVTT - BrainStuff Classics: Is Our Tipping System Gratuitous? 0:00:01.920 --> 0:00:06.320 Welcome to brain Stuff production of I Heart Radio. Hey 0:00:06.400 --> 0:00:09.280 brain Stuff. I'm Lauren Vogelbam, and this right here is 0:00:09.280 --> 0:00:14.120 another classic episode. One of the many conversations that's been 0:00:14.160 --> 0:00:17.680 going on during the COVID nineteen pandemic concerns how we 0:00:17.840 --> 0:00:22.520 pay our service industry workforce, especially with low wage fast 0:00:22.560 --> 0:00:26.960 food restaurants struggling to fill positions. It's increasingly clear that 0:00:27.000 --> 0:00:31.080 the industry needs to change as we move forward. Part 0:00:31.080 --> 0:00:35.120 of that conversation revolves around tipping and the federal tipped 0:00:35.159 --> 0:00:39.120 minimum wage. Today's episode digs into how it works and 0:00:39.400 --> 0:00:44.239 how it doesn't work. Hey brain Stuff, Lauren vogelbom here, 0:00:44.720 --> 0:00:47.559 Why do restaurants use tipping? Is it a reward for 0:00:47.600 --> 0:00:50.360 good service? Studies show that tips don't go up or 0:00:50.400 --> 0:00:54.080 down significantly based on the quality of service. Does tipping 0:00:54.240 --> 0:00:58.120 attract and retain better wait staff? Not really? Is it 0:00:58.160 --> 0:01:00.000 a bribe so the waiter won't spit in your soup 0:01:00.000 --> 0:01:02.640 the next time you come? Probably depends on the waiter. 0:01:03.560 --> 0:01:06.760 In most countries, a service charge is included in the bill. However, 0:01:06.840 --> 0:01:10.319 in America, instead of an upfront service charge, diner's hand 0:01:10.400 --> 0:01:12.800 over fifteen or more of the price of the meal 0:01:12.880 --> 0:01:15.920 to the server at their own discretion. It's not required, 0:01:16.160 --> 0:01:19.800 but it is customary. But this seemingly generous practice has 0:01:19.880 --> 0:01:23.960 some unpleasant hidden costs for starters. The existence of tipping 0:01:24.000 --> 0:01:27.160 allows restaurants to pay servers a federal minimum wage of 0:01:27.200 --> 0:01:30.760 two dollars and thirteen cents an hour, so waiters in 0:01:30.840 --> 0:01:34.679 most states basically live and die by tips. The result 0:01:34.760 --> 0:01:36.880 is that tipped workers are twice as likely to live 0:01:36.920 --> 0:01:39.800 in poverty and depend on food stamps as other workers. 0:01:40.520 --> 0:01:44.160 Then there's the opposite problem in stronger restaurant markets like 0:01:44.200 --> 0:01:47.039 big cities. The existence of tipping means that waiters in 0:01:47.080 --> 0:01:49.680 busy restaurants end up making a lot more money than 0:01:49.760 --> 0:01:52.600 the cooks and dishwashers who get paid a fixed hourly 0:01:52.640 --> 0:01:56.120 wage while working just as hard. Add to all that mess, 0:01:56.120 --> 0:01:58.919 the fact that America's tipping system is rooted in racist 0:01:59.000 --> 0:02:02.800 hiring practices emerged after the emancipation, when white business owners 0:02:02.800 --> 0:02:06.160 were trying to avoid paying new black employees, and tipping 0:02:06.200 --> 0:02:10.400 comes out looking decidedly ugly. So when does it make 0:02:10.440 --> 0:02:13.600 sense to abandon tipping in favor of raising restaurant prices 0:02:13.639 --> 0:02:17.000 so that all staff is paid fairly or would customers 0:02:17.040 --> 0:02:20.760 bulk get that. Sarah Clifton is a mathematics professor at 0:02:20.800 --> 0:02:24.919 the University of Illinois who specializes in modeling complex social behaviors. 0:02:25.320 --> 0:02:28.160 In a recent paper, she created mathematical models of two 0:02:28.240 --> 0:02:32.560 hypothetical competing restaurants, one with conventional tipping and one without. 0:02:33.040 --> 0:02:36.799 The paper was published in the February issue of Chaos, 0:02:36.880 --> 0:02:40.560 a journal from the American Institute of Physics. The key 0:02:40.639 --> 0:02:44.280 variable in Clifton's models is the average tipping rate. Tipping 0:02:44.320 --> 0:02:46.440 rates have been creeping up of the past few decades, 0:02:46.480 --> 0:02:49.240 from ten percent to fifteen percent and now close to 0:02:50.040 --> 0:02:53.680 in major US restaurant markets. Clifton's models are designed to 0:02:53.760 --> 0:02:56.360 be as simple as possible, with every player in the 0:02:56.400 --> 0:03:00.400 system motivated purely by monetary gain, meaning that when cooks 0:03:00.400 --> 0:03:02.760 are paid better, they're more likely to stay, meaning that 0:03:02.800 --> 0:03:05.839 food quality goes up. When waiters are paid less, they're 0:03:05.880 --> 0:03:09.720 more likely to leave decreasing service quality, but eventually the 0:03:09.800 --> 0:03:12.840 waiters would return if diners flooded the restaurant because of 0:03:12.840 --> 0:03:15.960 the food quality, which would presumably mean more profit and 0:03:16.080 --> 0:03:19.679 higher wages for all. What Clifton found was that when 0:03:19.680 --> 0:03:22.519 the average tipping rate crosses a certain threshold, call it 0:03:22.639 --> 0:03:25.919 the tipping tipping point, restaurants will make more money by 0:03:25.960 --> 0:03:30.560 abandoning tipping. Unfortunately, Clifton doesn't have enough real world data 0:03:30.600 --> 0:03:35.840 to calculate exactly what that magic tipping point is. Dozens 0:03:35.880 --> 0:03:38.560 of high end restaurants across the United States, led by 0:03:38.600 --> 0:03:41.960 New York chef and restaurant toward Danny Mayer, began experimenting 0:03:42.080 --> 0:03:46.119 with no tipping policies. These trend setting restaurants either increased 0:03:46.120 --> 0:03:49.120 menu prices by an average of twelve fifteen percent or 0:03:49.200 --> 0:03:52.920 included gratuity in the final bill. That way, the restaurants 0:03:52.920 --> 0:03:55.840 could distribute the earnings more fairly and pay everyone a 0:03:55.880 --> 0:03:59.240 fixed hourly wage. But this plan was not popular with 0:03:59.280 --> 0:04:02.720 the public. Michael Lynn, a professor of consumer behavior at 0:04:02.720 --> 0:04:06.320 the Cornell University School of Hotel Administration who researches tipping, 0:04:06.600 --> 0:04:10.200 reported that online customer reviews of no tipping restaurants went 0:04:10.280 --> 0:04:13.720 south when those no tipping policies were instituted, and we're 0:04:13.760 --> 0:04:17.280 worse when tips were replaced with service charges. Lynn said, 0:04:17.640 --> 0:04:21.360 people hate service charges, and if I increase my menu prices, 0:04:21.400 --> 0:04:23.599 They're going to think I'm more expensive, even if the 0:04:23.640 --> 0:04:27.279 combined bill is no different in other no tipping restaurants. 0:04:27.360 --> 0:04:30.320 It was the waiters who revolted. At Bar Agricole in 0:04:30.360 --> 0:04:33.280 San Francisco, servers were used to making twenty five dollars 0:04:33.279 --> 0:04:36.359 to forty dollars an hour including tips, while the kitchen 0:04:36.400 --> 0:04:38.920 staff was only making thirteen to twenty dollars an hour. 0:04:39.480 --> 0:04:42.679 When owner Thad Woggler decided to ditch tipping, his cooks 0:04:42.680 --> 0:04:45.920 and dishwashers were psyched, but the serving staff kept leaving 0:04:45.960 --> 0:04:49.640 for more traditional restaurants, so Waggler, like lots of other 0:04:49.680 --> 0:04:54.200 pioneering restaurant owners, switched back to the normal tipping scheme. Clifton, 0:04:54.279 --> 0:04:57.760 our mathematician, feels that these restaurateurs were simply ahead of 0:04:57.800 --> 0:05:00.720 their time. She said, when restaurant owners get rid of 0:05:00.800 --> 0:05:03.479 tipping too early, as we've been seeing with some really 0:05:03.560 --> 0:05:06.719 nice restaurants, they sometimes have to reinstate it because it's 0:05:06.720 --> 0:05:10.920 not profitable that would conform with what customers want. Her 0:05:10.960 --> 0:05:14.000 model indicates that casual restaurants should actually make the move 0:05:14.040 --> 0:05:16.479 before fancy ones, because the point at which the tipping 0:05:16.520 --> 0:05:19.160 rate becomes profitable would be lower for them than in 0:05:19.200 --> 0:05:23.680 the high end places. However, Joe's Crabshack, a decidedly not 0:05:23.839 --> 0:05:27.599 high end chain, tested the waters in late when eighteen 0:05:27.640 --> 0:05:31.640 of its restaurants abandoned tipping. Although customers were essentially paying 0:05:31.640 --> 0:05:33.600 the same exact total for a meal as they were 0:05:33.680 --> 0:05:36.800 when tipping was allowed, said they didn't like the not 0:05:36.880 --> 0:05:40.679 tipping policy. According to restaurant research, customers said they didn't 0:05:40.680 --> 0:05:43.039 trust management to share the money, and they felt it 0:05:43.040 --> 0:05:46.360 took away incentive for good service. Joe's dropped the not 0:05:46.440 --> 0:05:49.000 tipping policy less than a year after it started after 0:05:49.080 --> 0:05:51.520 losing eight to ten of its customers during the trial. 0:05:52.520 --> 0:05:56.039 So Americans themselves haven't reached the tipping tipping point yet. 0:05:56.480 --> 0:05:59.640 In the meantime, restaurants will likely keep experimenting with various 0:05:59.640 --> 0:06:02.880 tipping policies until they find one that keeps customers, waiters, 0:06:02.960 --> 0:06:10.600 and kitchen stuff all equally happy. Today's episode is based 0:06:10.600 --> 0:06:12.920 on the article when will we reach the tipping point 0:06:13.040 --> 0:06:15.800 for tipping? On how stuffworks dot Com written by Patrick 0:06:15.880 --> 0:06:18.479 ja Kaiger. Brain Stuff is production of I Heart Radio 0:06:18.520 --> 0:06:20.560 in partnership with how stuff Works dot Com, and it's 0:06:20.560 --> 0:06:23.799 produced by Tyler Clay. Four more podcasts my heart Radio. 0:06:24.000 --> 0:06:26.719 Visit the i Heart Radio app, Apple podcasts, or wherever 0:06:26.760 --> 0:06:28.160 you listen to your favorite shows.