The Chronicle: 1/3/2003: Tip Jars and the New Economy

By DALTON CONLEY

In all the hubbub about the rise and fall of the "new economy," one important trend has gone undocumented: the steady increase in the number of tip jars at restaurants, cafes, and other stores.

As far as I can tell, no official statistics are kept on the number of tip jars in consumer establishments, but over the last few years, I have noticed a staggering increase. Today you cannot order a coffee, buy a bagel, or pay for a photocopy without being asked to leave your change behind for "better service" or, alternatively, "good karma."

Their expansion to every service establishment seems to march onward independent of the state of the economy. In good times the supply of tips may be greater and thus drives their spread. But during a recession, demand may increase as low-wage workers rely on tips more than ever, and thus the proliferation of jars continues unabated.

One way to view the spread of tipping culture is that it represents the triumph of the free market: The promise of 15 percent (or more) may spur better service through direct economic incentives. That view rests on a number of assumptions, however, most notably the promise of repeat business. After all, why tip a taxi driver when you are about as likely to get him again (and have him recognize you, the "big tipper") as to find a pot of gold on Sixth Avenue?

In fact, the origins of the multibillion-dollar culture of tipping are as vague as the reasons for its continuance. Scholars are not even sure of the origins of the word. Some historians attribute the habit and the word to 18th-century English coffeehouses, where collection boxes (not unlike the tip jars of today) were often emblazoned with the words "To Insure Promptitude" (TIP).

Other researchers date its ancestry to the Middle Ages (before capitalism), when feudal lords tossed coins to beggars on the road to insure safe passage. And others see the origins in the Dutch word tippen -- that is, to tap on a table for service -- or the Latin word stips, which translates as "gift." Although the word may be fairly recent in history, the practice most likely long predates any of these records.

So while the benefits and origins of tipping are questionable, the social costs may be large, even as they remain hidden. About 100 years ago the German social philosopher Georg Simmel wrote a series of lectures and essays that would come to be the largest philosophical treatise on money. One of his keenest observations was the way that forms of payment affect social relations. In Simmel's view, modern society has gone through an evolution of sorts in payment schemes. First there was "in kind" payment. For example, a serf received some food and shelter for tilling the soil. She wasn't much different than oxen who were fed and stored for the night. Basic human needs were taken care of, but the dependence of the worker on the largess of the master was, in Simmel's view, dehumanizing.

Then came the "good old" days of craftsmen and cottage industry, when workers were paid on a per-unit basis. That is, you agree on the price for, say, a chair. The furniture maker procures the raw materials, fashions the chair, and delivers it "on spec." If the wood is rotten, or he makes a mistake and has to start over again, there goes his profit margin. He bears all the risk. His wages are dependent on the quality of the capital goods.

One step up the ladder from per-unit payment is hourly wages. While many social theorists (most notably Karl Marx) saw the advent of wage labor as something to be mourned, Simmel saw it as a further step toward worker liberation. Now the worker was privileged over the raw materials. If the wood were rotten, and the chair turned out to be no good, the worker would be paid all the same.

Even better is a salary. Now the worker is not even dependent on how much work there is to do. His salary is based on what the employer thinks is a reasonable standard of living for someone occupying that kind of position. Still better are honoraria and grants, since they are promised before the work is even performed and are totally independent of the outcome.

Tips, in this schema, are a big step backward. It is already bad enough that service workers are programmed to wish us a "nice day" and to plaster a perma-grin on their faces from the moment they show up to work.

The imposing tip jar further muddles business and sociability. If the promise of a dollar in the jar is what compels someone to be friendly, does that not cheapen smiles in general? Conversely, how can service workers and customers be on equal footing if the cashier's livelihood depends on the largess of the person ordering the mochachino? Also, studies show that aspects of the servers do affect tipping, although in a meritocratic world they should not. For instance, attractive females receive higher tips, according to at least one psychology study.

The presence of in-your-face money not only hurts the relationship between the customer and the service worker, it also damages the relationship between the worker and the firm. Tipping creates what economists call a principal-agent problem. In other words, it creates different incentives for the worker and the owner of an establishment. A waiter whose income largely derives from tips is more likely to give an extra scoop of ice cream to a customer. Research shows that these kinds of acts do increase tips on average, but they, of course, cut into the profit margin of the ice-cream parlor.

More importantly, tipping also is not good for the workers themselves. While often appearing to be tax-free revenue, tips create a high degree of income insecurity. Public-opinion research has shown that most customers would prefer that service workers were paid better wages and thereby the need for and practice of tipping could be eliminated -- which leads us to the age-old debate over the minimum wage.

The empirical arguments against raising the minimum wage focus on the perceived loss of jobs. If workers cost more, goes the neoclassical economics argument, then employers will hire fewer of them. While the debate is far from settled, a study by economists David Card and Alan Krueger has seriously challenged that view. By comparing the changes in employment rates in neighboring areas across state lines after one state raised its minimum wage and the other did not, they found no detrimental effect on labor-market opportunities resulting from wage increases. The demand for unskilled labor, it seems, may not be as elastic (that is, responsive) to price as once thought. Of course, those relationships may vary by other factors such as the state of the national and local economy, labor laws, and the local cost of living.

So -- in light of research and public opinion that casts the expansion of tipping and tip jars in a negative light -- why the proliferation? Again, while the lack of official statistics makes any analysis nothing more than educated conjecture, my guess is that the proliferation is at least partially the result of rising income and wealth inequality in the United States. In a recent article, the economist Paul Krugman cites a Congressional Budget Office study that found "that between 1979 and 1997, the after-tax incomes of the top 1 percent of families rose 157 percent, compared with only a 10-percent gain for families near the middle of the income distribution." The result, he writes, is that we are now at a point where the richest one-hundredth of a percent of households -- a mere 13,000 households in all -- enjoy "almost as much income as the 20 million poorest households."

While the rich get richer, those who serve the rich are increasingly left to appeal to the better instincts of the well off. The rich also need to have a way to release their guilt. If they tip big, then how bad can they feel for driving $40,000 SUV's and drinking their $4 coffees? (Of course, often it is the less well off who tip the most, out of insecurity.)

The cruelest irony, is that, of course, the worst-paid jobs do not even afford their workers the option to garner tips. The men and women who take the orders and bus the tables at the McDonald's and KFC restaurants of the world earn minimal (if not minimum) wages, receive no health benefits, and cannot even ask for tips. Also in this category of the untipped are maintenance and domestic workers, dishwashers, security personnel, and many other hidden service workers who work hard to ensure that we "have a nice day."

In fact, at one time, McDonald's allowed the practice, but the managers pocketed the money. When the public discovered this practice, outrage boiled over, and it was ended. So now it is only the employees in the middlebrow and high-end service establishments -- ranging from Starbucks (whose employees at least get health insurance) to the funky coffee shops it competes with -- who are able to paint the side of a sugar canister in bright letters asking for donations. And those of us who can afford to tip are placed in one more daily bind -- do we encourage the spread of tip jars by giving? Or do we find time in our busy days to rally for better wages for the hardest working, worst paid among us?

Another double latte, please.

Dalton Conley is director of the Center for Advanced Social Science Research at New York University and author of the memoir Honky (University of California Press, 2000).

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Section: The Chronicle Review
Volume 49, Issue 17, Page B15

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