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

7/27/2019 Tipping is a Business Risk Shell Game Supported by Service Industry Propaganda

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

James Keating


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[email protected]

Abstract

Just as Westerners accept fluoride, a form of toxic waste with unreliable evidence of healthbenefits, in their tap water, they will also accept service industry propaganda that tipping isa tradition that rewards good performance. Tipping has neither been proven an incentive

for service industry workers nor a benefit to society. Early Americans opposed tippingwhen it was introduced over one hundred years ago. China has a flourishing serviceindustry without gratuity. Are tips just charity for low income employees or another form ofindulgence long abandoned by the Catholic Church? This analysis, through literaturereview, attempts to uncover the economic mechanism behind tipping. It is an analysis thatavoids the trivial questions of how much to tip and how to tip. Not only is there sufficientevidence to conclude that there is no need to tip at all but evidence shows it is oppressiveand shifts business risk in the service industry to those who can least afford it.

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Western society has become accustomed to leaving gratuity for almost every kind ofservice. From the restaurant server to the taxi driver, every service employee seems todeserve 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 toleave tips in a restaurant, taxi, coffee shop, or barber shop. It is a psychologicalcompulsion, whether it be guilt or an expression of satisfaction, that drives the Westernerto leave a tip after receiving a service. In France, the customer is forced to leave gratuitiesin 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 inBethlehem 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 andcalled the police. Even with the restaurant admitting poor service, both patrons werearrested and charged with theft. Six days later the charges were dropped but the case hadalready 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 itsincentive based compensation structure which motivates employees? Is it similar to salescommission? Would the service industry collapse if everyone quit leaving tips? What ifthere is a more logical although less altruistic explanation? Just as industry's toxicfluoride(Prystupa, 2011) is sold to local governments in the U.S. to put into tap waterbecause it is allegedly good for teeth but really good for industry profits, tipping allegedlysupports low wage employees and rewards them for service. In both cases the evidencecontradicts these popular but sinister myths.

The tipping culture is not a system designed to incentivize service workers and improveservice quality but rather a system to oppress these workers by shifting the cost of laborto the consumer and business risk to the service employees. Tipping is a mechanism bywhich the service industry can justify low wages, externalize poor decision making, whilelowering quality standards. It is not an equitable reward system unless the customerdefines 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 anindirect threat of bad service when the customer is already obligated to pay the advertisedprice.

Lynn and Grassman (1990) concluded that customers tip to make a good impression onothers, comply with social norms and expectations, and to maintain relationships withservers. Maintaining a relationship with the server is especially important for frequentcustomers. Patronage frequency impacted tip size, controlling for bill size and service inLynn & Grassman's(1990) study. However, another study of 700 bill paying customers in 7restaurants found that patronage frequency does not seem to impact gratuities, eitherdirectly or through its interaction with service and bill size. (Bodvarsson, 1994)

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Few ever question the rationale behind the gratuity mechanism in Western society. It isconsidered to be a traditional aspect of culture that must be religiously adhered to. It is asocial custom, a rule of behavior, and a code of honor. Those not observing this unwrittenrule 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 bestowedindulgences or remission of sins for those who would pay money to the church, societyremoves a persons guilt for being served by low wage employees if they leave a tip. Someleave tips because they sympathize with the service workers and feel obligated tosupplement these workers salaries with gratuity. Some consider tipping to bereinforcement that ensures better service quality.

Consumers' propensity to leave gratuity and the impact of tipping on service quality remainas implications for future research. Recent studies indicate that the earlier the tipping thegreater the service effort (An-Tien & Der- Huang, 2007) but there is reasonable doubt as tothe incentive value of tipping in restaurants. Servers are unlikely to perceive the

relationship between service rendered and tips received. (Lynn & Graves, 1996) Therelationship between service evaluation and tip size is too weak for tip data to be used asa performance indicator for service employees. (Lynn, 2000) Customers do not leavelarger tips for better service as tipping is a function of habit more than performanceevaluation. (Lynn & Sturmann, 2010)

The psychological motivation for leaving gratuity is beyond the scope of this article and is asubject that deserves more investigation in research literature. Beyond the psychology oftipping is the financial and economic dimension which ultimately determines the trajectoryof any business practice. After all, if tipping is a humanitarian function in society then itshould be redefined as charity rather than a form of payment for service. If it is a businessfunction then it is only logical to analyze financial and economic aspects which couldpotentially result in better organizational effectiveness and ultimately a higher return oninvestment for the service industry.

Tipping results in higher return on investment but it is at the expense of customers andemployees. Customers are made to feel obligated to leave a tip even though they may notbe legally required to do it. Service workers are conditioned to look to the customers fortheir compensation rather than the industry management who pays them poverty levelwages if the industry is unable to attract sufficient customers to supply a constant streamof 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 promotingtipping 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, thereis no justification for leaving any amount for a tip. The price on the menu is the listed priceand any pressure or perceived expectation of more money is false advertising on the partof the restaurant. Custom and tradition cannot be considered in a multi ethnic society orglobal economic context.

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Tipping is a feudal practice(Gill, 2011), a repugnant custom (Palmer, 2013), should beillegal(Dunn, 2013; Porter, 2013), or banned.(Peterson, 2013) In some industries serviceworkers are fired for accepting gratuities. Servers in restaurants, porters, hairdressers,

caddies, etc. are strangely exempt from laws and social norms that affect others. Theplaintiff in Jusuf v. Southwest Airlines , an airline attendant, was fired for accepting a tipfrom a customer. (Fair Employment Practices Guidelines, 2009) When politicians receive atip it is called a campaign contribution, doctors receive kickbacks, executives receiveperks, and strippers receive tips. When a flight attendant receives gratuity it is grounds fordismissal.

The distinction between gifts, tips, and bribes is confounding. The U.S. Department ofDefense Joint Ethics Regulation which governs permissible gifts for governmentemployees 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 orinfluence.(2013)

Tipping is a recent phenomenon in the Americas in contrast to Europe where it has beenpracticed for centuries. Tipping in the U.S. also faced considerable opposition when it wasfirst introduced.

After the Civil War, wealthy Americans began traveling to Europe in significantnumbers, and they brought the tip home with them to demonstrate theirworldliness. But the United States, unlike Europe, had no aristocratictradition, and as tipping spread like evil insects and weeds, The New YorkTimes claimed in 1897 many thought it was antithetical to American democraticideals. Tipping, and the aristocratic idea it exemplifies, is what we left Europe toescape, 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 workerswho relied on fawning for favors.(Wachter, 2008)

If tipping faced such opposition in early America then many in the U.S. will be leftwondering how this insidious form of institutionalized bribery came into being. It is difficultto 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 ofthe U.S. does not preclude it from conspiring to maintain it today. The tipping cultureperpetuates a low wage work force.

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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 tippedemployee is only required to pay $2.13 per hour in direct wages if that amountcombined 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 theservice industry can do is pay their employees a minimum wage. If an employee receivesjust one U.S. Dollar a day, except for February which has 28 days, they are tippedemployees. Some states require the minimum wage to be higher than the federal rate butthis 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 volumeareas, 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, theemployer can pay them 2.13 U.S. dollars per hour, not even enough money to ride a bushome 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 areno customers then the employee becomes a wage slave, receiving a fraction of themandated minimum wage as a myriad of taxes are deducted before the employeereceives their payment. At least with tips, they are paid in cash which often goesunderreported.

Some would correctly argue that much of this tax will be returned at the end of the taxseason. However, this still represents non interest bearing loan to the government that isbeing whittled away by inflation. Meanwhile, the minimum wage earner hardly surpassessubsistence levels and may even have to secure bank loans to support a meager standardof living.

Of course some restaurants, bars, and hotels have significant business operations and thetipped employees are among the highest paid personnel in the business. This is theexception 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 orowner hires too many tipped employees. The business can decompose into an internalcompetition which rewards aggressiveness and politics rather than customer service.

Another example of businesses shifting risk to the tipped employees is when themanagement fails to choose a proper location for the business or advertise effectively. Inthis case, the employees bear the burden by receiving a low income. If there are layoffsthen these employees will also be the first to be discharged. Tipped employees accept therisk of poor managerial decisions.

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If the business succeeds they are not guaranteed to share in the additional revenue asmore staff can be hired further dividing the aggregate gratuity among moreemployees.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 whitecounterparts.

It is not only customers who profile and stereotype. Servers in restaurants profilecustomers and may adjust the level of service depending on their expectations of gratuity.Women, ethnic minorities, elderly, and foreigners may have a negative experience fromreceiving inferior service.(Lynn & Withiam, 2008; Porter, 2013)

Another quality factor to consider is service time. Time is sometimes critical such as duringthe delivery of a package. However, couriers are typically not tipped even though theyoften carry large boxes to the door of the recipient. Sometimes these packages consist ofseveral boxes with considerable weight. However, when someone delivers food to thecustomers door, such as pizza delivery, they expect a tip. Is this charity for the lesser paidprofession as parcel delivery drivers are better compensated?

Another time consideration involves comfort in a restaurant. Comfort in a commercialsetting can be defined as a state of relaxation influenced by mood enhancingenvironmental variables, expectations being met, and absence of pressure. Pressure canbe caused by time or space influences, annoying stimuli, and unpredictability ofenvironmental 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 emulateWestern practices by enforcing tipping but the tips must be included within the bill. Thevast majority of Chinese service workers do not expect gratuity. To the Westerner, it mayseem 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 asalary with no expectation of a tip. The form of remuneration for hairdressers is the sameas that of flight attendants. However, in China, it is not uncommon to see people inrestaurants playing games on a computer, playing cards, chatting with friends for a longtime, or even sleeping. There is little if any pressure for them to pay the bill and leaveduring a restaurants hours of operation. This is because there is no tip. In contrast, tippedemployees in the West are not rewarded for performing well. They are rewarded forturnover. The faster the waitress can get the customer out of the restaurant, the higher theturnover; hence, the higher their gratuity income.

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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 isused 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 theirconcentration is broken. In a Chinese restaurant, patrons must often call the server to thetable unless there is an obvious need to be filled such as an empty glass or plates thatneed taken away.

Tipping is a system that oppresses service industry workers by shifting the cost of labor tothe consumer and business risk to the service employees. Tipping is a mechanism bywhich the service industry can justify low minimum wage, externalize poor decisionmaking, 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 sourceof revenue. However, a neutral observer need only analyze Chinese culture and compareit to the West. The service in a Chinese restaurant is similar to that in the West. TheChinese taxi drivers, hairdressers, and porters are equally determined to perform their jobswell.

Gratuity is bribery. It is not an incentive but rather a disincentive. The tipping culture is nota modern method designed which motivates service workers to perform better. It is avestige of the European feudal system where the rich could afford to shower a table withcoins thereby getting better service. Today it is expected of everyone in the West so thetipping incentive has been diffused.

When people can ignore service industry propaganda and refrain from leaving tips thenthe spell of social engineering will be broken. Next time a waitress says 20% tip the patronshould ask for the reason. After all the price is clearly listed so where does the obligationto 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 theprice on the meter. Patrons should not let porters take their luggage to the hotel room andshould never tip hotel maids. It is not the role of the customer to pay the employees of thebusiness. 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 todefend their rights.

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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 andService Effort. Service Industries Journal, 27(1), 1-14.

Ayres, I., Vars, F.E., and Zakariya, N. (2005). To insure prejudice: Racial disparities intaxicab 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, fromhttp://www.merriam-webster.com/dictionary/

Chang, D. (Nov 23, 2009). Couple Busted for Refusing to Pay Tip. In NBCPhiladelphia. Retrieved September 27, 2013, fromhttp://www.nbcphiladelphia.com/news/local/Time-In-Prison--70426052.html

Dunn, E. (Jun 19, 2013). Why Tipping Should be Outlawed. In Esquire. RetrievedSeptember 27, 2013, fromhttp://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.

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Johnson, D. (Nov 24, 2009). Theft Charges Dropped Against No-Tip Couple. In NBCPhiladelphia. Retrieved September 27, 2013, fromhttp://www.nbcphiladelphia.com/news/local/Theft-Charges-Dropped-Against-No-Tip-

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Lynn, M. (2000). Gratitude and gratuity: a meta-analysis of research on theservice-tipping relationship. Journal Of Socio-Economics, 29(2), 203.

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Lynn, M. & Sturman, M.C. (2010). Tipping and service quality: A within-subjectsanalysis. Journal of Hospitality and Tourism, 34(2), 269-275.

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Peterson, K. (Jun 5, 2013). 5 reasons we should ban tipping. MSN Money. RetrievedSeptember 27, 2013, fromhttp://money.msn.com/now/post.aspx?post=54a75d58-55e8-44ed-9593-385604bfe455

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