Chances are, you’ve noticed more and more businesses asking you to leave a tip – from coffee shops and breweries to fast-food kiosks and drive-thrus.
How did we get here?
Today, On Point: Navigating the new world of tipping.
Sean Jung, assistant professor at Boston University’s School of Hospitality Administration.
Jeremy Price, co-owner and president of Sea Creatures Restaurants, which operates 10 businesses in Seattle, including fine dining restaurants like The Walrus and the Carpenter – and a handful of coffee and donut shops called General Porpoise.
Sylvia Allegretto, senior economist at the Center for Economic and Policy Research.
Mike Lynn, professor of consumer behavior and marketing at the Cornell University School of Hotel Administration.
TIZIANA DEARING: We've all noticed more and more places asking us to leave a tip. From bars and coffee shops to take out places, rideshare apps, drive-throughs.
JOHN IRVIN: There's this bakery that I just love. I like to order from them and go pick up their food, their cookies.
They've enlisted the help of a third party GrubHub. You have to go through the GrubHub app and they ask for a tip. Now I'm the person who's driving to the bakery to pick up the food. So who am I tipping?
DEARING: That's On Point listener John Irvin in Los Angeles. Here's Paula Durant, also in California.
PAULA DURANT: I recently made a reservation for an airport shuttle. Before I could finalize the reservation and pay, it required a tip. There was no choice in the matter. If you didn't fill in tip, you couldn't make your reservation and pay for it, and I found that extraordinarily problematic. I'm a good tipper, but I want the option of tipping for the service I'm offered not in advance of the service I'm offered.
DEARING: Now, servers have noticed the confusion too. Robert Sakowitz is in Minneapolis.
ROBERT SAKOWITZ: I work at a place that does a service charge that tells people not to tip. And when I started working at this place, I was all down for it. A consistent paycheck. But then as time went on, you realized there's no incentive to work harder, hours get cut.
DEARING: And Liam Odien is a career bartender and bar manager. Here's his suggestion.
LIAM ODIEN: If everyone tipped an extra dollar every time they went out or bumped their tip from 20 to 21% or 18 to 19% or what have you, it would be life-changing money for almost any service employee.
DEARING: So how do we all navigate this new world of tipping and what's behind the seemingly massive shift in tipping culture?
Joining us now to help us understand that is Sean Jung. He's an assistant professor at Boston University's School of Hospitality Administration. Sean, welcome to On Point.
SEAN JUNG: Hello, Tiziana. Thank you for having me. It's a pleasure to be here.
DEARING: Great to have you. I guess I should ask, start by asking, it is a new world, right? We don't just feel this, something has changed, Sean.
JUNG: It absolutely has. The tipping world has been changing over during the pandemic and also after the pandemic, as well.
DEARING: And the pandemic in your mind is the starting point when things began to shift.
JUNG: Oh, absolutely. I would say the reason why all of this has changed more drastically is because of the pandemic. During the pandemic a lot of people in the service industry found out that some didn't want to continue working in the industry as well as they also found new opportunities. And that actually led to the Great Resignation which was after the pandemic. That lead to basically having less employees in the restaurant industry.
And for that reason, now, restaurant owners are fighting to find good quality talent. And in order for the best way to actually bring in talent is to increase wage. And because of that's why we are now seeing these new type of technologies, that can actually increase those wages for basically for employees at this stage in the restaurant industry right now.
DEARING: Sean, there's a lot in what you just said, and I want to break it apart and slow it down. So let's go --
DEARING: Let's go back to COVID, because I have to admit what I thought you were going to say about its starting with COVID was that moment of kind of solidarity where everybody was picking up their food. Nobody could work in restaurants anymore. We were celebrating our frontline workers who either didn't get sent home or couldn't work from home, and it did feel like there was a, I don't know, a stretch there, if that's the right word, Sean. Where people were showing their gratitude with their money and trying to keep workers whole, and especially our food industry, our restaurant industry, open.
I was assuming you were going to say that had something to do with this early change in tipping. Am I wrong?
JUNG: Oh no, absolutely not. That would be basically on the consumer side, where the consumers basically they, that is true that they basically felt that they wanted to support their restaurants and for that reason, even for things that we would never actually imagine to pay as tips. People would be still willing to pay tips for that. And for that reason, most of all of our orders that we had were online. And for that reason, again, cause consumers were finding way were being a little bit more acceptable of paying tips to even some of the restaurant industries that we would never be thinking of paying before.
On the supply side, on the other hand, as mentioned before, there is a great shortage, as well as during the pandemic. A lot of people were laid off or were sent home with no paycheck as well. And that also has also affected some portion of that part of what we're seeing right now.
DEARING: It's helpful to have you break out, Sean, that consumer side versus the supply side. As we saw this massive shift that COVID started, I think it begs the question, then why doesn't the employer pay the person more? Versus asking the consumer to pay more in the form of a tip. And now of course I'm cheating.
I know you have an answer to that, but I want you to answer that, which is why I am teeing it up for you.
JUNG: No. Yes. The reason why basically this is all happening where the restaurant is trying to basically use tipping as a source to pay for the employee's wage, is basically because if you put it on price, then that basically means you are the only restaurant that has increased the prices, while other people are using the strategy of trying to ask for more tips.
Now, if that actually happens, then you get less demand, and for that reason, if you get less demand, of course, you would be the only restaurant that would be suffering more than other restaurants, relatively. And, of course, if we are thinking that if this strategy is to survive, then of course it would be better to use the same strategy that everybody is using right now, which is for basically everyone at this point.
DEARING: So we're speaking with Sean Jung, who's on the faculty at Boston University School of Hospitality Administration, where we're exploring what has felt like a really new world of accelerated pressure to tip, changes in who we tip, changes in how much we tip, where we're asked to tip over the last few years.
Kind of underlying what you're talking about there, Sean, is a suggestion that there's a lot of price sensitivity here. That you can't afford to have it look upfront, like it's going to cost a consumer a lot more to eat at your restaurant. Somewhere in there has to factor in this question of inflation. I live in the Boston area.
I know a lot of our chefs, and our restaurants talk constantly about how much more expensive it has become to put the same meal on the table for a customer as it was two years ago.
JUNG: Absolutely. The war in Ukraine also had a very big impact in terms of the increase of food costs and especially also on the side of the restaurants.
If you think about it, restaurants on a good day earns around an average of 5% margin. And if you think of how much the prices have increases, and only in terms of the ingredient costs, it's very hard for a restaurant owner to not increase the price while also having to deal with basically, wanting to give more wage to their employees, where they are also having a hard time due to this high inflation that we are experiencing right now.
DEARING: Okay, so there's this other thing. And if I'm a listener right now, I'm thinking, 'Why haven't you talked about the screen?' If you're going to talk about tipping, what I want you to do is talk about the screen, so it's time to talk about the screen. Sean, where did it just magically appear? Where have these screens come from?
Where you know, you're using your Apple Pay or your credit card. And all of a sudden, every screen, everywhere, is offering one the chance to tip.
JUNG: I think one of the biggest complaints that I think that everybody has as of today is that they are seeing places where they haven't tipped before, before the pandemic as comparing to now, we're basically tipping for almost everything that we purchase it today. And the biggest difference that we can see is basically that now we have that tipping within our system of our payment. So before, if you went to a coffee shop, you would basically see a tipping jar, which basically had nothing to do within the process of what you are paying.
But nowadays, if you go to, let's say, a coffee shop, the thing is, you are basically, after you pay for what you have purchased, they basically turn over the POS and then ask for that tip. So now it's, that's basically saying that the tipping process is now with inside the payment process.
And when that actually happens now, people are more aware of that they have to pay tip or sometimes they're not quite sure if they have to pay tips since now it's basically right in front of their face.
DEARING: So what I want to understand about that, Sean, is that like one of those things that simply technologically became possible and was coincidental with the other factors you're talking about, or did tech companies start to offer it because they noticed the other factors you're talking about?
JUNG: I would say that the tech company has found a way to basically, by whether it was by accident or not, they have found a way and realize that now it is a way to actually increase wages.
Technically speaking, we really don't know if it was designed by on purpose, but it is a fact that they also now currently very well know that this system works when it comes to paying tips.
DEARING: Okay, so here's what I think I've got from you so far, Sean. We are in a new world that is in fact the case.
It was launched at the time of COVID. And since then, pressures on inflation. The changes in our labor force, and the fact that restaurants can't afford to pass some of this on, or at least they would say that, due to prices, have led to asking the consumer to do it instead of the supplier. Is that about the size of it?
DEARING: Today, we’re talking about navigating the new world of tipping, but thinking about the new world also got us wondering about the old world of tipping and how the practice became so ingrained. For some insight into that we turned to Sylvia Allegretto. She’s a senior economist at the Center for Economic and Policy Research. She told us that tipping first appeared in the United States around the 1800s.
SYLVIA ALLEGRETTO: So you had some of the wealthier Americans who were traveling abroad. And the interesting thing is that tipping was really big in Europe. And that’s not that case today. So kind of--tipping has been kind of flipped on its head. It wasn’t the case in the United States at the time. It was the case in Europe.
DEARING: Tipping took off after the Civil War, Allegretto says, as businesses started hiring formerly enslaved people. Businesses like the Pullman Company, which employed thousands of Black porters to work in its railroad cars. The porters sometimes worked as many as 20 hours a day — for very little money.
ALLEGRETTO: They didn't want to pay them a regular wage, and they thought it was okay just to leave it up to the mostly white, wealthy customers to pay them tips and that they could live on those tips.
DEARING: Economist Sylvia Allegretto says a passionate debate about tipping developed in the late 1800s, early 1900s, as the United States’ rapidly industrialized. Some wanted to crack down on tipping because they saw it as an exploitation of labor.
ALLEGRETTO: One of the most outspoken during the progressive era was a man called William Scott. He wrote this great book called “The Itching Palm: A Study of Habit of Tipping in the United States.”
DEARING: In 1916, Scott wrote, quote:
“The relation of a man giving a tip and a man accepting it is as undemocratic as the relation of master and slave.” End quote.
Another big name from history who criticized tipping is Eleanor Roosevelt.
In 1938, she said it was the result of the failure to provide a living wage. Allegretto says, as long as there’s been tipping, there’s been a debate about it. She sees the current discussion in the U.S. as another iteration of that debate.
With us still is Sean Jung, assistant professor at Boston University’s School of Hospitality Administration.
I’d like to bring another voice into the conversation now. Jeremy Price is the co-owner and president of Sea Creatures Restaurants, which operates 10 businesses in Seattle. Those include fine dining restaurants like The Walrus and The Carpenter – and a handful of coffee and donut shops called General Porpoise. Jeremy, welcome to you, too.
JEREMY PRICE: Hello, Tiziana. Thanks for having me.
DEARING: It's great to have you. So Sean and I spent some time earlier in the conversation, Jeremy, setting up the fact that we are in a bull new world, coming out of COVID and due to inflation changes in technology, et cetera. When as a restaurant owner, did it feel like there was a huge change to you?
PRICE: Yeah. Yeah, I think the labor constraints coming out of the pandemic and, I think a lot of restaurants were in the same position that we were in here in Seattle, where, you know, we went through several lockdowns. There was a number of layoffs, and then once we were able to operate again, normally there was this massive kind of rehiring of staff to get back into business and into operation, and I think the labor market became really competitive.
What Mr. Young was saying I think is right on about the tipping and kind of all these new places, having everything to do with the labor market being so competitive, finding workers being very hard.
DEARING: Sean, looking back at the history that we just heard, I'm thinking about something you said earlier about, for example, the change from the tip jar to the screen.
This change in tipping has really led to a pretty massive cultural set of shifts and anxiety. Would you agree?
JUNG: Yes, that would be absolutely true. A lot of people are starting to be feel a lot confused as mentioned before, because you're basically asked for tip for even situations that you haven't, well, or weren't expecting, before the pandemic.
DEARING: So I want to pick up on that. We called Mike Lynn, who is a professor of Consumer Behavior and Marketing at the Cornell University of Hotel Administration. He says that in theory, we behave differently. We'll use this tips jar example with jars as opposed to automatic tip screens, and he says that there's arguably more social pressure when a screen prompts the tip.
MIKE LYNN: Failure to tip with the tip chart is passive. It's a sin of omission. Failure to tip with the screen is active, and we tend to think of sins of omission as less problematic than sins of commission, but perhaps even more importantly than that, tip jars contain information about what other customers have done, and it's fairly easy to see whether people ahead of you are putting money in a tip jar.
It's not as easy to see what people are selecting, and I think that people's default is I'm assuming since they're asking, most people must be giving.
DEARING: So Jeremy Price, there's two things right there. There's the sort of the social and sociological dynamics of what a tip scream does versus a jar, but there's also the fact that people are beginning to respond to social pressure.
And as a restaurant owner, I think I'm more intrigued in this moment at the social pressure thing and how you've seen customer behavior change. Feels like we went a really long time after that history of let's say 1938. Where it wasn't particularly controversial, at least in the restaurant world and food world, to tip.
PRICE: Yeah, that's right. I think it's been the norm for, as long as I've been doing this and a lot longer in fact.
DEARING: So something changed for you in 2015? Tell us about that.
PRICE: Yeah. We made a switch from accepting tips like everyone is used to, to a 20% service charge.
And a lot of reasons for that. But the instigating sort of thing for us was legal advice, that the way we were tip pooling and tip sharing might be problematic with some new interpretations of the fair labor Standards Act.
And so we went through a whole process with our team and looked at comprehensive pricing, looked at tipping, looked at service charges and ultimately decided to make that move from tipping to service charges.
DEARING: And when you had a service charge, did you find that customers reacted differently to that than they had to when it was just their choice to tip or not?
PRICE: Not especially. I think, probably 80%, 90% of our customers were ambivalent about it.
If they had an opinion one way or the other they weren't sharing it, they seemed fine. We had maybe another 15% of folks, 10, 15% of folks that were really excited about it. Comments it's great not to do math at the end of my meal. And then there was a small kind of vocal minority that absolutely felt that we were taking away their agency, their power to choose how much to leave.
In those cases, we would remove the service charge. By and large, most people didn't seem to feel strongly about the change one way or the other.
DEARING: So that's on the consumer side. I want to bring the server side into this, too. When we reached out to listeners for voicemails, we got one from Sasha who's a server in Miami.
Here he is.
SASHA: The biggest problem with tipping in Miami is the gratuity is included in most checks. This whole idea of including tip, the only beneficiary of this is the owner of the restaurant. Because they get to keep like good 4% or 5% out of the 20% added to each check. And the reality that the server will only make another 11, maybe 12%.
DEARING: So they've got a strong assertion there, Jeremy Price. I want to talk to you and Sean about this. First, your reaction as somebody who runs both coffee and donut shops and fine dining restaurants, Jeremy.
PRICE: Yeah I think that a person was right on you. You do see with service charges the house, the restaurant retaining some of it to pay the tax on the service charge.
Service charges are treated like revenue and taxed accordingly. Whereas a tip just passes through the house, through the restaurant, right onto the employee's check, and the house does not pay tax on it the same way. No question. Right on. And this was one of the reasons while coming out of the pandemic we moved away from that service charge just to, again, get as much money to our employees' paychecks as possible.
DEARING: Sean Jung of Boston University, as we've been speaking with Jeremy here, we've been in the realm where people have known, practiced, been aware of, comfortable with tipping for a while. Which is sit down restaurants, food industry.
One of the things that we heard at the top of the show were people expressing pushback, confusion about the new realms of tipping. Wait, who am I expected to tip? Who am I not expected to tip? What is customary, what isn't? And it does feel, Sean, like some of the question here is not about amounts even, but norms and customs.
So talk about that a little bit.
JUNG: Yes. Absolutely. The thing is, but just to clarify, so for tips if you are wondering where it's going, it is by law 100% going to the employees.
DEARING: Is that true in every state, Sean Jung?
JUNG: Yeah. For tips, that is absolutely true. For service charge, that kind of depends.
So for service charge the employer has the right to basically distribute that whether that being not only in front of the house, but also back of the house. But that actually changes depending on the state level. For instance, for Massachusetts, the law is pretty strict, and it also mentions that even for all service charges, it has to be only distributed over to the front of the house.
Which means that there would not be included, that would not be including back of the house in that such case, but that actually differs depending on state. But where it's going, basically, as mentioned for tips, 100% to the employees, but for service charge, that kind of depends on the state.
DEARING: So actually, let's stay with that. I appreciate you bringing that up, Sean, and since you did, let's stay with it for a minute. We'll go back to Jeremy. Jeremy, how did you distribute your service charges. And as you've spoken with other restaurant owners, was that an important piece, being able to use any of the money for the restaurant itself?
PRICE: Yeah, absolutely. So in our case, we took that 20% service charge. And 25% of it, was the $7 left, $10, $2.50 that was retained by the house. And we used that to cover the tax on that service charge. And then the remaining amount was split between the front of house workers, the, the servers, the bartenders, the hosts.
Bussers, and the back of house, your cooks, your dishwashers. And a 70-30 split of that remaining money. So that's how we did it. In Washington State, there's, I think, maybe a little bit more latitude as long as you're disclosing everything to the customer, both on the menu and on your credit slips and receipts.
But that's how we approached it.
DEARING: And Jeremy, just briefly, when you went away from the service charge and back to tipping, did you find that your servers brought home more again or not?
PRICE: Yeah, absolutely, right. So right away that 25%, 20% service charge we were no longer retaining that.
That was a raise right away. And then on top of that, I think we were running our service charge in such a way where that there wasn't an additional tip line. So it was, just the 20%. What we find is that our customers tip closer to about 22%. We think what's happening is they're probably tipping on the total amount, including tax.
Whereas the service charge was not working that way, it was only applied to the actual pre-tax amount. It's definitely been a raise for everyone in the restaurants. The switch from service charge, how we were doing it, to tipping.
DEARING: Okay, back to you Sean Jung. And I'm glad you gave us a chance to close the loop on that.
Now I do want to widen it out, because it does feel like in this moment where people are challenged by the new world of tipping that we have established we're actually in, part of that challenge is should we have to tip everybody that we're now getting asked to tip? And that comes around to a lot of things about, is the tip in order to help people make enough money?
Or is it a response to service? So where you hear somebody say, 'Wait, if I'm the one actually picking up the food at my favorite bakery where I like their cookies, then who is it I am tipping?' So let's talk about this expansion of the tipping universe, Sean Jung, and what you are seeing and understanding in that.
JUNG: I see. First of all, if we think of what by law what the definition of tip is. A tip is basically a money a customer leaves for an employee over the amount due to, for the goods sold or service rendered. And for that reason, it's a gray line where we can legally ask for tips.
For restaurants, however, it's a very special case where basically the tip that they receive is a substantial portion of what they earn as comparing to other industries that we would compare for services. So for instance, for a restaurant in Massachusetts, they don't receive the minimum wage of $15, which has been recently implemented in January, but they are receiving $6.75 per hour.
The rest is depending solely on their tip. Of course, if the restaurant cannot, they don't receive enough tips that don't go up to $15, then in that case, the restaurant has to pay for that tip credit. But still for a restaurant employee, for especially for a waiter or a waitress basically the tip amount is substantially important for them.
So in that case, still having the same norm of paying 15%, unfortunately 20% these days is still a good practice that is substantially very important to their daily lives. Now, for other industries, that's a little bit different. And the reason why is because of course they are not receiving less than the minimum wage.
A tip is a surplus of what they are doing and for that reason, if, of course, if they ask for a tip, that really still depends on the consumer of whether they really want to pay that tip or not.
DEARING: Okay. So I want to summarize that, and we'll get a little bit more into this difference in the minimum wage a little bit later in the show.
So I think what you're saying, Sean, is, especially in the restaurant industry, where the tip has been is to make up for the fact that the earned wage is in fact lower. And legally you tip based on the quality of either the product or the service. And then when you are looking at requests for tips in industries where the person isn't structurally paid less because of the way the minimum wage works, then it's really up to the customer to make the decision.
Am I understanding that correctly?
JUNG: Yes, that is correct.
DEARING: Alright, and Jeremy Price, you being fully situated in the restaurant industry, does that sound like how you think your customers think about it?
PRICE: I'm not sure. The situation in Washington state is a little different where our servers do make, restaurant workers and Washington State do make a minimum wage of $16.50, at least in the city of Seattle.
So they are getting that. So I don't know if our customers are necessarily thinking about it in that way. I do think that they're probably doing what they're doing, just out of custom. There's a social sort of like understanding about what a tip should be and I think they're carrying through with that.
DEARING: You've actually given us a little bit of a sneak preview into what we can talk about when we come back, because actually Washington State is one of two states where there is no difference between the full minimum wage and a minimum wage, for example, for restaurant workers.
DEARING: Today we’re talking about changing expectations around tipping. We’re joined by Sean Jung, assistant professor at Boston University’s School of Hospitality Administration. And Jeremy Price, co-owner and president of Sea Creatures Restaurants, which operates 10 businesses in Seattle, including fine dining restaurants like The Walrus and The Carpenter – and a handful of coffee and donut shops called General Porpoise.
As we’ve been talking about what tipped workers make before tips, varies widely from state to state. One part of a federal law about their pay hasn’t changed in more than 30 years. It’s called the subminimum wage. So we're going to go back to Sylvia Allegretto, senior economist at the Center for Economic and Policy Research:
ALLEGRETTO: The subminimum wage was introduced in 1966, that was an amendment to the Fair Labor Standards Act, and that's the act that originally introduced the regular minimum wage. So in 1966, they decided to amend the act to cover more workers. Because originally, only about one in five workers, or maybe less were covered by the Fair Labor Standards Act. So they widened the umbrella, the protection of workers to include service workers such as restaurant workers. But at the same time, they decided that they would pay those workers who received tips only half of the regular minimum wage.
DEARING: Allegretto says that the thinking was that service workers would make up the difference in tips. With this new subminimum wage, businesses got what’s called a tip credit.
ALLEGRETTO: And the tip credit is basically an employer wage subsidy, meaning that they could count towards the wage bill, the tips that the workers receive. The employer's just assuming that every hour you work, you got $5.12 in tips, and then the employer just uses that as a credit. Credit, meaning they now don't have to worry about paying you that wage.
DEARING: If a worker doesn’t make enough money in tips to make minimum wage the employer is supposed to make up the difference. Allegretto says that hasn’t always happened.
ALLEGRETTO: There’s little enforcement. When, if you're working at a diner and a truck stop in the middle of the country, maybe you're not making enough money to make up the tip credit. So, so then it turns into kind of like this idea that it becomes wage theft.
DEARING: So, the federal subminimum wage used to be linked to the federal minimum wage. So every time the minimum wage went up, the subminimum wage would go up, too. Remember, it used to have to be half the minimum wage. But Allegretto says that stopped in 1996 with another change to the Fair Labor Standards Act:
ALLEGRETTO: The NRA — (LAUGHS) the other NRA — the National Restaurant Association, which is another very powerful lobby, got language put into the bill that basically froze the sub-minimum wage at $2.13 an hour into perpetuity.
DEARING: Enter the late Herman Cain, then president of the National Restaurant Association, who brokered the deal with then-President Bill Clinton. So today, the federal minimum wage is $7.25. And, more than 30 years later, the subminimum wage is still $2.13. Sixteen states still use that as their subminimum wage – including Oklahoma, North Carolina, Texas and Virginia. Others have tweaked the amount. And, Allegretto says, seven states have no subminimum wage at all. She’d like to see that happen in more places.
ALLEGRETTO: We can make these jobs better jobs. They have done it around the world and they've done it around the world without subminimum wages. It can be done here too. So we need higher, regular minimum wages. We need to phase out subminimum wages. So we can take some of the idea of what makes a good job, the benefits that make a job a good job and make them universal for everybody.
DEARING: So that's Sylvia Allegretto, senior Economist at the Center for Economic and Policy Research. Sean Jung, I think I just want to turn to you and give you a chance to react to the way Sylvia Allegretto laid out that history.
JUNG: Yes, what you mentioned is absolutely accurate in terms of how the subminimum wage has moved across time.
As well as what we currently are experiencing over all the states. However, in terms of the increasing the subminimum wage to, let's say, matching the minimum wage, that really depends on how much the restaurant can actually bear that amount of cost. And for that reason right now there has been a lot of debate in terms of whether we can actually do this.
It's not as easy as of course, it would be the right direction, but also it will take a lot of time. As well as careful thinking if we would want to actually increase that wage to minimum wage. And then completely eradicating the system of having that subminimum wage at this point.
DEARING: Jeremy Price, I turn to you, and I'm mindful I talked about two states, Washington and California, which have one structure. Sylvia Allegretto talked about the total of seven states where in practice there's zero gap right between the two. You're in Washington state, you do run some coffee and donut shops, and I want you to think about those there.
Should you be in a situation where right now you were paying the subminimum wage the just over $2, and you did have to close that gap, would you be able to do it? Would you be able to find a way to do it as a business owner?
PRICE: Not without raising prices significantly. I don't know that the market would really bear that, our situation is that we, we are paying a $16.50, city of Seattle minimum wage to, to our coffee workers and, that is reflected just as it is on any other menu in the city and in the prices.
IRIS: So I wanna bring in, anytime we do that, I think it's great if we can also bring in the server voice, right? And we got a call from Iris who's a server at a pizza place and patio bar in Chicago. Here's a part of the message that Iris left us. My pre tip wage is around $9.80, something like that.
We don't have a service charge at my restaurant, so I rely completely on tips. And generally, people are pretty good about being generous, there's some people who really stiff you.
DEARING: So that need to rely on tips, Sean Jung, followed by the vulnerability of relying on tips, and then we've got this other dimension.
Which is bias, and I think bias is an important thing to bring into this as well. Sean, I'm going to play for you a little more sound from Mike Lynn, who's the professor of consumer Behavior at Cornell University School of Hotel Administration. And in this case, talking about potential bias, for example against Black servers.
He says there's some evidence that Black servers get lower tips than white servers, but there's not enough data to be as clear as he might like to be.
LYNN: The evidence strongly suggests that black service providers get lower tips. There's not nearly as much data and it's not as good a data to study this in a real-world context, you are going to restaurants and keeping records.
Most restaurants have only a handful of Black servers. It's hard to be sure that any race difference you're observing is caused by race and not by the peculiar characteristics of the individuals who make up that race.
DEARING: Meaning, I'm assuming Sean Jung there when he is talking about it, such a small sample size that you can't be sure that you're seeing statistically significant information there.
And yet one does have the question about vulnerable populations being even more vulnerable when relying on the discretion of tips to make up these gaps, Sean Jung.
JUNG: Yes, that's absolutely true. Professor Lynn is absolutely right in terms of that, as well as I have actually read several of this paper related to that subject.
As you've mentioned, when we are saying it's not statistically significant means that we don't actually have much data to actually prove it in a statistical way yet. However, it is a true fact that we are opening that, shall we say, it's not an opportunity, but I would say a chance for that to be actually happening in the real world.
If you ask whether a tip is this tip does have that sort of racial profiling, though we don't find it yet in terms of a statistical way, it still opens a chance that absolutely there might be that sort of situation that we are seeing in today's world.
DEARING: Jeremy Price, I'll turn back to you.
The coffee and donut shops you run, the General Porpoise shops, do any of them use the screens where the suggestion for tips are right there? Do you have that in any of your coffee and donut shops?
PRICE: We do. Yeah. They all have that as part of our point-of-sale system.
DEARING: Do you perceive that the presence of that and the social pressures we talked about earlier, right?
The person in front of me did it. And of course, there's three tiers, 15%, 20%, or 25%, or maybe it's 25%, 30% and 35% in some cases. Do you perceive that there could be a leveling effect from those screens that might help eliminate bias? Do you, and again, we're talking about anecdotal here. This is perception, but I'm curious to ask you.
PRICE: Yeah. Yeah. I think potentially, I don't know that we've, if I have like kind of anecdotal stories, one way or the other on that. I think, back to what we were talking about earlier, I think people do a lot of times just had a sort of a set point in their minds about what they want to tip.
And unless something goes amazingly well or really awfully, they're just going to tip at that set point, so I don't know if the prompts on the screens really move the needle for people.
DEARING: So your perception really is that for a customer, they come in and there is a percentage that sort of exists in a steel wrapped bubble.
And then unless something really wild happens in one direction or another, that number holds, period.
PRICE: Yeah, I think that's true. And I say that only because the tipping amount is just really so consistent in our experience. There is deviation of course, but that bell curve, there are just so many people in the middle kind of doing the same thing over and over and over again.
So again anecdotal, but that's my experience.
DEARING: So I want to, this intrigues me. So now, okay, I wasn't gonna do this, but I'm gonna do this because I'm intrigued by that. I wanna introduce another caller. This is On Point listener Eileen in New Haven, Connecticut, who says it would help her as a customer if employers were transparent about how much their workers were making.
EILEEN: I think this problem can be fairly easily rectified if employers or the software at the point of sale requires employers to declare what they are paying their workers per hour. If I see that somebody's making the tipped minimum, which is just over $2 an hour, I'm going to feel very differently about being asked to tip 20% to 25%.
Then I am if I see that a barista is making $12 an hour.
DEARING: So I didn't set that up as a gotcha to you, Jeremy Price, although I am gonna come back to you on it in a minute, but I wanna start with Sean Jung first and historical practices of transparency or lack thereof, and whether you think more wage transparency would make a difference.
And if, if there's any research to support that, Sean.
JUNG: Wage transparency? To be quite honest, I'm not that knowledgeable in terms of that, but if we think of that in an economical way or shall we say in previous practices, I don't think that there is many places that had to basically show their wages in order to basically make a sale or even have tips received.
So it's a very unconventional practice, which hasn't been very implemented in today's world. I do find it interesting if that would be possible or would even, would see and would expect that people would then actually pay more tips if they were receiving less than the minimum wage.
But again, it hasn't been quite seen in the real-world practice to be quite honest.
DEARING: And Jeremy, what's your reaction to our caller there?
PRICE: Yeah, I think it's a interesting kind of thought experiment. I think employees might be pretty uncomfortable with disclosing what their earnings are to strangers.
But I think it's interesting to consider, would that move the point? I think hopefully consumers, guests of restaurants and coffee shops know what's going on in their area with the minimum wage and kind of can make some assumptions about whether employees are making a tip minimum wage, or, making a firm minimum wage. But yeah, again, I've never heard of any other operators doing anything like what the caller described. So it's hard to really say more about it.
DEARING: Jeremy, let me ask you, in a dream world across your restaurants, your coffee shops, your donut shops, understanding what it takes to reward your employees the way that you would like to and keep them.
If we took tips off the table, what's the hourly wage that you both wish you could pay your employees, and you believe if you did pay your employees, you would have a stable and rewarded employee environment? Roughly what is it?
PRICE: Oh man, I don't know if I have a firm number. Like a lot of cities in America, Seattle has a housing affordability crisis right now.
Where we're in a situation where, on top of everything else, it's hard to find workers because many workers are, have been priced out of living near our restaurants. So I think it's actually like a much larger number probably than you would think.
Right now, they're probably with tips making, between $20 and $30 an hour. And that's really probably sounds like a lot depending on where you're listening in the country. But, for here, that still, puts a studio apartment probably out of your reach.
So I don't have a number in mind. I think we'd want an economist to tell us what a living wage in Seattle is, that would be comfortable for people. But that's what I would target.
DEARING: But it's more than that. It's more than that.
PRICE: Yeah, it is. All right.
DEARING: Alright, and Sean Jung, I've got just a few seconds for you. It makes me wonder at the end of the day, is this about wages and wage policy really?
JUNG: It absolutely is. Currently we're in a very high inflation situation where consumption hasn't been decreasing as well. And it's a tough life to live right now.
And for that reason, that's why people need more in terms of wages and restaurants need to find a way to actually find that solution. And that is the current situation that we have to all, shall we say, accept, I would say.
DEARING: And do you think, do you see any sign to believe that's someplace we can get?
JUNG: Get to?
JUNG: Oh, getting better. Hopefully, yes. Hopefully the inflation will start to decrease. And hopefully we might actually have a situation where tip doesn't have to be a nuisance to us back again.
This program aired on July 27, 2023.