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No tip required: It should be abolished alongside passage of $15 minimum wage

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Michael Daigh
Paying a gratuity, or “tipping,” as a form of compensation for service employees, most notably in restaurants, is a practice that should be abolished with the passage of a $15 per hour minimum wage. The very best thing that might be said about tipping is that it is a curious atavism, originating in the feudal economies of the Middle Ages, which, depending on one’s sources, was frowned upon in the United States as fundamentally undemocratic until it became an institutionalized form of wage supplementation during the Great Depression.

The United States is now in a tiny minority of countries where this practice exists, and stands alone in the percentage of gratuity expected after dinner. Canada, Mexico, Chile, Poland, Ukraine, Egypt, and Armenia are the only other nations where gratuity is expected, and 10 percent to 15 percent is considered generously adequate. The worst that might be said of tipping is that it is a source of economic and even racial inequality, and furthermore is socially onerous.

The origin of the term “tip” is murky, possibly rooted in 17th century European thief’s cant for “to give.” Tipping became a habit of the aristocracy, and traveled to the American colonies in imitative form. After Emancipation, tipping became a favored form of compensation among employers who found that it was very profitable to hire newly freed slaves to work for gratuities alone. Consequently, American labor unions once led efforts to ban the practice altogether before those unions were largely broken by the federal government. Globally, labor was more successful.

Institutionalized in Great Depression

When Congress passed the minimum wage in 1938, what had become a way for service employees to earn any money at all during the Great Depression became institutionalized on behalf of their employers, and a separate minimum for tipped employees was written into the law. Until 1996, it at least had the virtue of scaling alongside the real minimum wage, until Godfather’s Pizza CEO Herman Cain appealed to a Republican Congress to take that provision away, and in 18 states it has languished at $2.13 ever since.

This separate standard for a certain class of employees is what in union parlance we would refer to as a “B-scale,” a term synonymous with economic inequity. Perversely, because Americans are dimly aware of the wage plight of tipped employees, the same democratic impulses that once led us to reject tipping have transformed it into a social obligation, one felt so deeply that the quality of service itself doesn’t even matter, and only accounts for a variance of 2 percent in the final gratuity. We tip because we know that servers are on a B-scale, and we also know that they deserve more.

Tipping should be uniformly abolished alongside the passage of a no-exception $15 wage. A B-scale exists for tipped wages, and tips are obligatory because of the B-scale. The elimination of one obviates the other. As for the impacts on labor: If a tipped employee currently makes less than $15, they have already benefited. If one makes $15, nothing has been lost. For the rarified strata of servers who make $25, $30, or more, logic clearly dictates that the cash flow is already present in the system to continue to support those wages. The restaurant simply needs to raise prices by, say, 18 percent, and eliminate tipping. In a world with a minimum wage there are jobs that pay more, and server jobs are no exception. A restaurant so good that it can support such tips can also support those wages without them, and the best servers will still compete to work there.

 

Deceiving the consumer, outsourcing labor costs

Why are restaurants so opposed to this? It’s how every other industry functions in the real world, but for restaurants it’s really about deceiving the consumer while also outsourcing labor costs. Tipped wages allow owners to practice a form of pricing legerdemain, subtly hiding consumer costs from the most immediate decision-making faculties. Even the most astute consumer simply does not factor adding 20 percent in to any quick calculation, at least not accurately when reading printed numbers in a social setting. This math-in-public affects decision-making regarding spending and even choice of venue. Furthermore, in a slightly slumping economy, management likely has no need to adjust prices; labor acts as the buffer, bearing all the initial losses for management in the form of a couple of percentage points here and there. It adds up.

In the near term, it is likely that eliminating tipping will complicate and elevate the form of psychological warfare on consumers. To wit: If one restaurant raises printed prices by 20 percent while instituting a “no-tipping” policy, while another places, at the end of a meal, a fine-print 20 percent “service fee” on the check, the average consumer will perceive the latter as the more affordable option, and yet will also assign blame for the additional compulsory cost on labor rather than management — even though data show they would have paid it anyway.

Exceptions and variances make the system more opaque. Hypothetically, when a consumer pays for dinner and tips 20 percent, in which following instance, assuming equal pricing, has economic fairness and transparency been satisfied? Is it when a B-scale restaurant is making outsized profits while their labor costs are externalized, or when consumers are paying up front for a living wage, plus tipping based on a deeply ingrained belief in the continued existence of a B-scale? Or perhaps when a restaurant paying a fair wage is barely making it as they keep their prices competitive with a regional competitor on a B-scale?

One might make the argument that tipping as a system is fair or transparent when a restaurant charges deceptively less by subtly shifting labor expenses on to the consumer. Yet this is merely the ideal form of a system that is historically racist and anti-labor. In fact; it’s still racist. Research has been conclusive that while quality of service has little effect on gratuity percentage, skin color absolutely does; black servers are consistently tipped less than white servers, constituting a de facto discriminatory pay system no matter what the base wage, and only by the most severe mental acrobatics can we accept this form of compensation as legal. The data regarding the sexual harassment of servers connected with favored sections and schedules is even more grotesque and compelling.

The City of St. Paul likely cannot eliminate tipping along with the passage of a minimum wage, but if it can, it ought to. Otherwise, culturally, the extinction, however slow, of this practice should begin. It already has in Seattle, and in other cities that have implemented a $15 wage. At a minimum, the St. Paul should provide guidelines, education, and encouragement for the elimination of tipping compensation altogether, in the name of economic transparency and equity for consumers and labor.

Michael Daigh is an active St. Paul citizen, a pilot, a union volunteer, and a lieutenant colonel in the U.S. Air Force. He holds a master of arts degree in history and is also the author of “John Brown in Memory and Myth.”

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Comments (13)

  1. Submitted by Mark Kulda on 11/09/2018 - 10:29 am.

    This article is a perfect example of why cities should not even be having this discussion. Enacting this policy on a city by city basis will hurt businesses in border cities where one city enacts a higher wage and the other does not. Can you imagine how many restaurants on St. Paul’s border will possibly close if their prices are now 20% above their competitors across the street? This discussion is much more appropriately handled at the statewide level or even national level.

    • Submitted by Frank Phelan on 11/09/2018 - 12:49 pm.

      Change like this has typically bubbled up from below. That’s the way it worked with minimum wage laws in the early part of the last century. And that’s how it worked with banning smoking in bars and restaurants. First it was one municipality. Then another. Then a few more. Then the entire state.

      It’s a common tactic among the elite to argue, “Well, it’s not right to do that at the local level, it should be at the state of national level.” Maybe it’s sheer coincidence, but often at the higher levels the elite have more political muscle. In the 90’s Saint Paul wanted to do away with the blight of bill boards. But the billboard industry just went to the state capitol and took the authority away from municipalities.

      By all means, let’s do away with tipping. Alternatively, we could expand the tipping culture. Should we start with surgeons? Maybe fire fighters? How about income tax preparers?

      • Submitted by Jamie Robinson on 11/09/2018 - 05:47 pm.

        A simple google search of this subject will show servers and bartenders want a tip credit and want to keep tipping in place because they earn far more than owners would ever be able to pay them. That’s why servers and bartenders in Maine and Washington D.C. fought for and won reinstatement of their tip credits.

    • Submitted by Pat Terry on 11/10/2018 - 11:19 am.

      Nonsense. The cost of living is very different in Minneapolis than in rural Minnesota. A higher minimum wage makes in one and not the other.

      I can tell you exactly what is going to happen on the border. Suburban restaurants will have trouble filling positions and will raise their own wages.

  2. Submitted by Joel Stegner on 11/09/2018 - 02:44 pm.

    Tipping also promotes a culture in which some customers harass young attractive women and punish those employees again which they harbor bigotry. Also, those who generous essentially silubsidize customers who are not. And of course, employers would have pay workers reasonable wages – and that is not necessarily just $15 per hour. If this is going change, it needs a place that is pro worker. St. Paul fits the bill. Let the rest of the state catch up later.

  3. Submitted by R. Hanson on 11/09/2018 - 02:55 pm.

    Tipping is usually discussed in contest of servers, but there are a lot of other service industry workers who take tips. Barbers, hair stylists, makeup artists, massage therapists, personal trainers, delivery people, concierges, porters, doormen, drivers, etc. Many of these people already charge much more than minimum wage. Would banning tips only apply to low paid servers?

  4. Submitted by Jake David on 11/09/2018 - 06:08 pm.

    As someone who makes 15 an hour as a bartender living in San Francisco, this article gets my blood boiling. You try living in a city like SF on just minimum wage( even if that wage is that high ) you will not survive. As for those who don’t have that high of a wage, I don’t even want to think about the grind they go through. This makes me think you’ve never worked in food service a day in your life. Bottom line, if it wasnt for tips, no one in food service would be able to pay one month rent in a city like San Francisco.

    • Submitted by Michael Daigh on 11/09/2018 - 08:51 pm.

      Jake,

      You seem to have missed the point, so I’ll allow you to take a moment of angry breathing before reading for comprehension.

      I don’t think that servers should “just” work for $15. I said as such in the essay. I fully believe that in the right venue a server can and should make more, I just think that tipping should not be the mechanism. It is racist, sexist, anti-labor, and violates multiple norms of economic transparency.

      Incidentally, I worked in food service for tips for several years in college. However, I knew that eventually someone would come out slinging identity accusations in an effort to make some sort of point.

      So, I’ve violated rule #1 of online writing/reading: Never read the comments.

      Anyhow, Jake, if you make $30/hr, then logic clearly dictates that your place of employment can price accordingly and pay you $30. The cash is there, as you have proven. It doesn’t have to be in the form of tips.

      I believe in economic justice for everyone. I’m sorry you missed the point. Also, I think we all know that SF has a tome’s worth of structural issues to discuss. Possibly the country’s most broken and oppressive economy.

    • Submitted by Frank Phelan on 11/10/2018 - 12:15 pm.

      Given that the City of Saint Paul is not able to do anything about the minimum wage or a tip penalty in San Francisco, you can relax and let the citizens of Saint Paul hash this out.

  5. Submitted by Bob Barnes on 11/09/2018 - 11:34 pm.

    This article is just another failed economics lesson. Tipping is done to reward good service. People in lower income jobs like waitresses and waiters can make pretty good money on tips just by doing a good job. Raising the minimum wage will just put a lot of them in the unemployment lines. I’m going to leave alone the subject of why there shouldn’t be a minimum wage in the first place.

    Just because other countries do something doesn’t mean we should too. You have to make your own decisions based on what is best for your own citizens.

    Now if you want to have a discussion about minimum wage, it would blow your mind to know that it really should be closer to $35 an hour right now just to get people back to the same level of purchasing power they had in 1980.

    • Submitted by Michael Daigh on 11/10/2018 - 10:16 am.

      Bob,

      While this online format isn’t really one for Turabian formatted citations, so I have not provided a source list, I did address this very point:

      Quality of service has almost no effect on gratuity.

      No matter what you believe about this, the data says that you are wrong. Service causes merely a 2% variance in gratuity.

    • Submitted by Michael Daigh on 11/10/2018 - 12:38 pm.

      I forgot to point out the most obvious rebuttal, perhaps because it is so obvious: Fair wages are the way to reward good work, which in the service industry means good service. That actually is basic Econ.

      Tipping doesn’t exist for the benefit of the server. Please re-read for comprehension.

  6. Submitted by Tom Crain on 11/10/2018 - 11:06 am.

    According to Condé Nast Traveller tips are given and expected in more than just the handful of countries listed by the author. In fact only in northern Europe and Japan is it expected that you not tip. However, it also seems to be that nowhere else in the world is 15-20% tip a norm. In nearly all countries that expect tips, 5% is considered adequate.

    Up until mid century 10% was normal expected tip in the US. Then 15% more or less into the 90’s and now 20% is considered reasonable for good service. In what other part of the economy is 1/5 of the price for a service discretionary?

    Regarding the economics of minimum wage, it seems to me it should be set at least at the level at which a person is eligible for public assistance. I realize this is a different number for various types of assistance, however it seems clear the current minimum wage is well below that. In effect these low paying industries are being subsidized by all tax payers.

    Set an adequate minimum wage with a tip credit. The tip credit has been shown- by IRS estimates – to improve tip reporting (as taxable income) from less than 15% before Tip Credit in 1982 to 45%. Less than 1/2 of all tip income is reported. This is an estimated $11B in unreported income.

    You might think that’s ok, that low paid service workers get a bit of a tax break. And I would agree but we shouldn’t pretend this off-the-books compensation doesn’t distort the market in all kinds of ways.

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