Tipping Culture: Almost Half of Consumers Are Tipping Less Due to Inflation

June 5, 2023

Whether eating in a restaurant or buying coffee at a drive-through, American consumers often have to decide whether or not to tip. And the rise of tip screens at every type of checkout has made this tipping decision even more common. But who should you really have to tip, and how much?

Professor Emeritus Michael Lahr offered these insights:

Have you noticed any changes in the way people are tipping due to the effects of inflation?

In the main, not so much. What’s happening more is the people who go out to eat are still the people who have deeper pockets. The people who are suffering the most aren’t going out to eat, so they’re not paying those tips.

There have also been some experiments on tipping which have found people don’t mind tipping when the bill is large, but they mind tipping when the bill is small. So if you get a $3 to $4 cup of coffee, ordinarily you might leave 50 cents, maybe even 15%. I used to go into a place like a deli, get a cup of coffee, and leave. Maybe after three or four times I’d leave a tip.

Now everything is cashless because of COVID. When you’re signing on the iPad, you’re given options which now start at 18%. If I wanted to leave 10%, I have to hit “other,” or I can give none. And this is happening in front of the waitstaff, and often there’s this strange pressure that is unfortunate.

Some consumers feel tips are a way for business owners to shift labor costs to consumers. In a business sense, does this hold true?

Well, for sure that’s true. But you have to realize the best waitstaff prefer to be tipped. They’ve moved to the best restaurants where they can make $200 to $300 a night on tips alone. They’re probably also getting a decent wage. There, everybody’s motivated. Everybody’s motivated to some degree to tip. The customer likes it because they almost think they’re getting one [over on someone] when they can show how much they’re putting down to the other people at the table. If the waiter is paid a base wage and they’re given a nice tip, then that’s another way for them to be rewarded for the quality of their work.

There’s a whole other problem with tip sharing though. Kitchen staff don’t get any tips at all, and they get paid less than the waiters. Sometimes they might get minimum wage, and the owner is (technically) not allowed to touch anything. But of course the owner’s the one who collects the tips. If the business is cash based, there’s no way to check if the employer is distributing all the tip monies to the workers or not. Owners are not supposed to keep any at all. This is to say there are things they say by law are supposed to happen, but there’s no way we can assure that.

Do you have any sense as to why tipping is more common in the U.S. than in other countries?

It became law that one could give a lower-than-minimum wage in 1966. So that was something that reinforced what was already happening, because after World War II there was no longer tipping in Europe. France was first; they made it overt and made tipping undesirable.

In China and some other places, like Japan, it’s acceptable but really discouraged because they’re thinking their staff are too proud. They shouldn’t be bribed. So there are certain countries where you don’t tip. If you do, you are almost offending the waitstaff.

Finance Buzz, June 5, 2023

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