When Will We Reach the Tipping Point for Tipping?

El Carajo bill — The bill from the Miami tapas restaurant El Carajo suggests three different tipping amounts, as is common in the U.S. Jeffrey Greenberg/UIG via Getty Images

Tipping makes zero sense. Is it a reward for good service? Studies show that tips don't go up or down significantly based on the quality of service. Does tipping attract and retain better wait staff? Not really. Is it a bribe so the waiter won't spit in your soup the next time you come? Probably depends on the waiter.

In most countries, a service charge is included in the bill. However, in America, instead of an up-front service charge, diners hand over 15 percent (or more) of the price of the meal to the server. It's not required, but it is customary. But this seemingly generous practice has some nasty hidden costs.

For starters, the existence of tipping allows restaurants to pay servers a federal minimum wage of $2.13 an hour. So, waiters in most states basically live and die by tips. The result is that tipped workers are twice as likely to live in poverty and depend on food stamps as other workers.

Then there's the opposite problem. In stronger restaurant markets like big cities, the existence of tipping means that waiters in busy restaurants end up making a lot more money than the cooks and dishwashers, who get paid a fixed hourly wage while working just as hard.

So, when does it make sense to abandon tipping in favor of raising restaurant prices so that all staff is paid fairly? Or would customers balk at that?

Sara Clifton is a mathematics professor at the University of Illinois who specializes in modeling complex social behaviors. In a recent paper, she created mathematical models of two competing restaurants, one with conventional tipping and one without. The paper was published in the Feb. 8, 2018 issue of Chaos, a journal from the American Institute of Physics.

The key variable in Clifton's models is the average tipping rate. Tipping rates have been creeping up over the past few decades, from 10 percent to 15 percent and now close to 20 percent in major U.S. restaurant markets.

Clifton's models are designed to be as simple as possible, with every player in the system motivated purely by monetary gain. When cooks are paid better, they're more likely to stay, meaning that food quality goes up. When waiters are paid less, they're more likely to leave, affecting service quality. But eventually, the waiters would return if diners flooded the restaurant because of food quality which would presumably mean more profit and higher wages for all.

The Tipping Tipping Point

What Clifton found was that when the average tipping rate crosses a certain threshold — call it the "tipping tipping point" — restaurants will make more money by abandoning tipping. Unfortunately, Clifton doesn't have enough real-world data to calculate exactly what that magic tipping rate is.

In 2015, dozens of high-end restaurants across the United States, led by New York chef and restaurateur Danny Meyer, began experimenting with no-tipping policies. These trendsetting restaurants either increased menu prices by an average of 12 to 15 percent or included gratuity in the final bill. That way, the restaurants could distribute the earnings more fairly and pay everyone a fixed hourly wage.

But this plan was not popular with the public. Michael Lynn, a professor of consumer behavior at the Cornell University School of Hotel Administration who researches tipping, reported that online customer reviews of no-tipping restaurants went south when the no-tipping policies were instituted, and were worst when tips were replaced with service charges.

"People hate service charges," says Lynn. "And if I increase my menu prices, they're going to think I'm more expensive even if the combined bill is no different."

In other no-tipping restaurants, it was the waiters who revolted. At Bar Agricole in San Francisco, servers were used to making $25 to $40 an hour with tips, while the kitchen staff was only making $13 to $20 an hour. When owner Thad Vogler decided to ditch tipping, his cooks and dishwashers were psyched, but the serving staff kept leaving for more-traditional restaurants, he told NPR in 2016. So Vogler, like lots of other pioneering restaurant owners, switched back to the normal tipping scheme.

Clifton feels that these restauranteurs were simply ahead of their time. "When restaurant owners get rid of tipping too early, as we've been seeing with some really nice restaurants, they sometimes have to reinstate it because it's not profitable," says Clifton. "That would conform with what customers want."

Her model indicates that casual restaurants should actually make the move before fancy ones because the point at which the tipping rate becomes profitable is lower than in the high-end places.

However, Joe's Crab Shack, a decidedly not-high-end chain, tested the waters in late 2015 when 18 of its restaurants abandoned tipping. Although customers were essentially paying the same exact total for a meal as they were when tipping was allowed, 60 percent said they didn't like the no-tipping policy, according to restaurant research. Customers said they didn't trust management to share the money and they felt it took away incentive for good service. Joe's dropped the no-tipping policy less than a year after it started, after losing 8 to 10 percent of customers during its trial.

So, Americans haven't reached the tipping tipping point yet. In the meantime, restaurants will likely keep experimenting with various tipping policies until they find one that keeps customers, waiters and kitchen staff all equally happy.