The Ethics of Tipping

Tipping. It has been a bane of American commerce since it was introduced following the Civil War. How much should I tip? Is there a minimum requirement or is it voluntary? What is the purpose of tipping? Why should I tip at all?

American social norms have long indicated that a 15% tip is appropriate for servers in restaurants. Recently, that ‘acceptable’ amount crept up to 18% and even 20%.

Even within in the food industry, why do we tip a server in a sit-down restaurant, but not the person who delivers our food to a table in a fast-food place?

And what about other services? We tip cab drivers and hotel attendants. Should we tip the hairdresser, the butcher, the grocery bagger?

The Social Norm of Tipping

Tipping, particularly in the restaurant industry, is ingrained in American culture. In the early 20^th century, William Scott started a movement to eliminate the practice of tipping. In his 1916 book, The Itching Palm – A Study of the Habit of Tipping in America, Scott said, “The vast majority of Americans who give tips do so under duress. At heart, they loathe the custom. They feel that it is tribute exacted as arbitrarily and unrighteously as the tribute paid to the Barbary pirates.”

Conversely, Scott found that 85% of service workers surveyed feel uncomfortable accepting gratuities but do so because they recognize that it is the only way for them to receive a livable wage.

Yet, tipping has taken on the aura of a social norm. We are concerned about what others will think of us if we don’t tip. But unlike many social norms, tipping can come at a considerable cost. It costs nothing to open a door for someone, or to remove one’s hat upon entering a building. But tipping the ‘usual’ 15-20% can add hundreds of dollars or more to our annual budget. A 2017 estimate put the total amount of restaurant tips paid in the U.S. that year at $36.4 billion.

Even if service is subpar, people will generally shell out the gratuity, especially if they are with others. One tipping website suggests that a tip of 10% is ‘appropriate for poor service.’ Better to reward mediocrity than to be thought a “skinflint”.

Why Do We Really Tip?

What then motivates us to pay that extra 15-20% or more? Israeli economist Ofer Azar’s research showed that only about 13 percent of Americans say they tip to influence future service. Conversely, 60 percent of Americans say they tip out of guilt. Sixty-eight percent say they do so out of gratitude. For 85 percent, it’s the social norm. And shockingly, four percent say they tip “to avoid being yelled at.”¹

This is borne out is actual practice. If we were to presume that a customer tips to influence future service, would it not be reasonable to assume that a customer who will never patronize that business again – a tourist for example – would not leave any tip? Yet most people tip in a restaurant, regardless of whether they will ever patronize the business again.

With some other service providers, the connection with future service is more likely – with a hairdresser or butcher for example. There is a fear, rational or not, that the service might not be as good next time if an insufficient – in the mind of the service provider – tip is left. Certainly, our relationship with our hairdresser is more direct than that with restaurant servers, unless we are truly regular customers of the restaurant.

Tipping is also unique in the world of voluntary giving. Tipping, as with monetary gifts and donations to charity, consists of offering money we are not legally obligated to pay to others. However, monetary gifts are most often given to relatives or close friends. Donations to charitable causes may come from a sense of belief in the charitable mission. But it may also be bolstered by a level of public recognition, one’s name appearing on a list of donors – with donation amounts listed or at least grouped.

In the case of gifts and donations, there are often emotional connections as well as monetary ones². Even bounty paid to the Barbary Pirates came with an expectation of safety.

Tipping, however, is money given to a stranger for a fleeting service, with little or no emotion attached. The food doesn’t taste better if we tip more – although we might decrease a tip if the food is bad. Ironically, that factor is likely out of the hands of the person being slighted on the tip.

And there is no relationship between the amount of a tip and the service performed. It takes no more effort on the server’s part to deliver a steak than it does to deliver a salad to a table. Yet the tip for the steak is several times that of the salad.

Scott even notes that tipping is actually paying twice for the same service. A restaurant is not a grocery. We expect food purchased from a restaurant will be cooked and served to us ready to eat. And the cost of meeting that expectation is built into the labor costs of the restaurant. So the server is essentially being paid by the restaurant to deliver food to the customer (with that cost being built into the menu price of the meal) – and then paid again for the same service through a tip³.

Subsidizing Wages

At its heart, tipping is all about subsidizing subpar wages. The hospitality industry, in particular, can get away with paying low wages because there is an expectation that consumers will make up the difference with tips.

In fact, this is actually how tipping became popular in America. Following the Civil War, the Pullman Company hired newly freed African American men as porters in their sleeping cars on trains. Rather than paying the former slaves a real wage, Pullman provided the black porters with a bare subsistence wage, forcing them to rely on tips from the mostly-white train passengers for most of their pay.

Tipping was further entrenched in service jobs – often low paying jobs held by ethnic minorities – in which workers must please both customer and employer to have any chance at a livable wage⁴.

In the early 1900’s, several states tried to end the practice, but the restaurant industry, happy with a system of having customers subsidize their operating costs, fought back. So powerful was the restaurant lobby that the 1938 minimum wage act only applied to about one-fifth of hourly workers in America. The rest, mostly tipped workers in service industries, were excluded from the provisions of the bill.

It took until 1966 for Congress to address a minimum wage for tipped service workers. Even then, the wage was set at 50% of the minimum wage for non-tipped workers – $2.13 per hour. It is a testament to lobbying power that even today, 56 years later, the federal minimum wage for tipped workers remains at $2.13, even as Congress entertains legislation to set the overall minimum wage at $15 per hour⁵.

Another strange part of our culture is that we are expected to calculate a tip on the total bill, which includes government sales or use taxes, rather than just on the food portion of the bill. This practice exposes the obvious conclusion that tipping is really more about subsidizing the business’s overhead than just rewarding the worker for good service.

Is This an American Thing?

The practice of tipping actually originated in feudal Europe. It became popular in America in the 19^th century, seen as a way for people to seem more sophisticated. It also provided a convenient way, as we saw with the Pullman Company, for employers to avoid paying reasonable wages to formerly enslaved workers.

In Europe today, tipping is customary although the recommended amounts are much lower. In many countries, a 5% tip is considered generous. Italy discourages tipping at all, although restaurants may add a 10-15% service charge. This surcharge is also common in other countries, so one should check the bill to see if such a charge has been added before tipping.

A friend told me about an interesting, although informal custom in Czechia, particularly in Prague. If you greet an server in the Czech language, even if you are a tourist, they will not expect a tip. However, if they are greeted in English, they expect the American norm of 15%⁶.

Of course, no one will likely turn down money. However, travel guides recommend handing a cash tip – in local currency – directly to the server. Tips added to a credit card likely will go never further than the business till.

Tipping is highly discouraged in Japan, where the entire culture rests on a service attitude. However, some high-end restaurants may add a service charge. Once again, an individual server likely will not turn down a discretely offered tip.

Let Me Help You With Your Tip

Many people will say that they tip to reward individual workers for good or excellent service. Yet few will withhold a tip, even if the service is subpar, out of a sense of guilt of knowing how much the service worker relies on tips to make ends meet.

In recent years, many restaurants began ‘helping’ customers determine their ‘voluntary’ tip by adding suggested tip amounts to the printed receipt. Tip amounts are calculated at 15%, 18%, 20%, and even 25% of the total bill.

While some people found these ‘suggestions’ helpful, it was revealed that some businesses were even padding the calculations on the receipts. So the amount listed as “15%” might actually be 18% or more⁷. Few people bother to actually check the math. Still, many people calculated their own tip, or completely ignored the ‘suggestion.’ 

Point of Sale Terminals

About four years ago, I went into what was essentially a fast-food restaurant for a sandwich and drink. The clerk took my order on an iPad, and then spun the device around to me to ‘confirm’ my order. It was less a ‘confirmation’ of the order than an overt request to pay a tip in advance.

The screen had buttons to add 18%, 22% or 25% to my order (the ‘standard’ 15% wasn’t offered as an option). I didn’t even see a button to decline a tip at first. When I noticed it, I saw that it was a small light gray button in the lower corner of the screen – in contrast to the larger colored buttons in the center of the screen for my ‘voluntary’ tip.

Since the business had tables, I decided to go along, even though the concept of tipping before any service had even been rendered seemed strange. The clerk gave me a receipt with a number on it, which didn’t seem too unusual. Many places give you a number to put on your table to help the server locate you.

But in this case, I was more than taken aback when a clerk called my number. I learned that I was supposed to go to the same counter where I originally ordered. As I walked up, a clerk literally threw a paper bag containing my sandwich onto the counter. When I asked about my drink, I was told, “Cups are by the machines. Only take one.” 

Not exactly the level of service that I would normally pay an 18% tip for. That restaurant quickly went out of business, but the concept remains.

They’re Everywhere

Since that time, I’ve encountered similar point-of-sale systems several times. My favorite breakfast restaurant – a true, sit-down restaurant – uses them. Even though I know that they have servers who bring food to your table and (usually) check back at least once to see that the orders are properly prepared, I still decline to add a tip at the order station. I will leave a good tip at the table if the server is friendly and at least shows a level of concern that my party’s food is correct.

But I’ve also had a few instances of less than great service in that same restaurant. In those cases, I would have been quite unhappy with myself for bowing to the tip-as-you-order system.

What’s the Answer?

As illustrated by the fact that reformers have been trying without success to eliminate the tipping culture since the time of William Scott, reform will not be easy.

We can initially address the issue by demanding that service industries, particularly the restaurant industry, pay an adequate wage. Likely, this would start with Congressional action to eliminate the current loophole in the minimum wage laws.

But it will also take a change in the social norm that we have all been raised on. Since relatively few people have a true idea of how much a particular restaurant server makes in wages, even a significant increase in that wage would not like change the perception that tipping is ‘necessary.’

The Value of a Person

Such a change will not be easy. But at its core, elimination of the need for tips to bolster wages would go a long way to reinforcing the truth of the value of each and every person.

In his 2009 book, Tipping – An American Social History of Gratuities, Kerry Segrave quoted journalist John Speed in 1902: “Negroes take tips, of course; one expects that of them—it is a token of their inferiority. But to give money to a white man was embarrassing to me. Indeed, I do not now comprehend how any native-born American could consent to take a tip. Tips go with servility, and no man who is a voter in this country by birthright is in the least justified in being in service.”⁸

Certainly, in 2022, we are making strides to move beyond this racist attitude. Recent events and the dedication of countless Americans to the cause of eliminating racism are crystal clear statements of that. 

The tipping culture, however, still sees service workers, regardless of race, as an inferior class unworthy of the same level of wage protection as the rest of society. It is a practice whose time needs to pass.

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1. Azar, Ofer H., Why Pay Extra? Tipping and the Importance of Social Norms and Feelings in Economic Theory. Journal of Socio-Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=681143.
2. Ibid
3. Scott, ibid
4. Barber III, William J, et al. “The Racist History of Tipping.” POLITICO Magazine, 17 July 2019, www.politico.com/magazine/story/2019/07/17/william-barber-tipping-racist-past-227361.
5. The U.S. Department of Labor sets the minimum cash tip wage at $2.13, although, as of January 2022, it also specifies that the actual minimum wage – hourly wage plus tips – must be at least $7.25. Many states follow this, although some specify a higher minimum. California, for example, requires a minimum cash tip wage of $15 for most businesses. Others, such as the District of Columbia, specify a combined minimum wage, tips and hourly wage, of more than $10 per hour.
6. I didn’t personally see this when I was in Prague a few years ago. But I was also with a group where all arrangements were handled by a local guide. So I never actually dealt with servers.
7. One restaurant I frequent takes this one step further. If ‘they’ – the manager or whoever – doesn’t feel you’ve tipped enough, they just bump up what they charge to your credit card after you’ve left the business. Illegal? Most likely, but I like the food, so I just adjust my tip down – even for good service – knowing they are going to add to it.
8. Segrave, Kerry. Tipping: an American Social History of Gratuities. McFarland, 2009. pp: 10-11. Tellingly, Speed’s statement ignores the fact that, by 1902, most African-Americans were ‘native-born American(s)’ or that most African-American adult males in 1902 were ‘voter(s) in this country by birthright.’