#43: No More Tipping
Here’s a crazy prediction: tipping is going to go away in the United States. It’ll be uncommon outside of high-end service experiences within five to ten years. There are a couple reasons coming together that I think will put the general public over the brink, and we will slowly, then suddenly, stop doing it.
First off, why tip?
The history of tipping is fascinating. When it came to the United States in the mid-1800s, it acted as a way for self-proclaimed elites to assert their social superiority by dispensing small amounts of money to inferiors everywhere. This was deemed to be in conflict with American democratic, egalitarian values, and six American states actually made tipping illegal. It remained unpopular until Prohibition in 1919, when the missing revenues from sales of alcohol forced hotels and restaurants to supplement wages via tips.
Today, tipping is dually based on (1) it being a cheap way to pass hidden costs to the customer and (2) the idea that it solves a principal-agent problem, that tips incentivize service personnel to provide good service, and a flat hourly wage doesn’t. The second reason has been broadly studied and debunked; it turns out that tips correlate more with gender and boob size than they ever did with the quality of service. Only the first reason remains, and it is, on its face, bullshit.
The important takeaway is that tipping is not some kind of set-in-stone social tradition or based on some necessary moral precept. Historically speaking, it’s actually pretty controversial. What has been unpopular before can be unpopular again.
So why will it become unpopular? Let me run through the reasons coming together.
(1) It’s Everywhere, and it’s Inappropriate
Digital checkout terminals from Square, Revel, Toast, and co are everywhere now. They’ve made it easy for non-tipping business to start asking for tips — and the businesses do so, because it raises revenues. The social custom of tipping is strong enough that some people are willing to tip at grocery stores, or for delivery, or for any number of other things with no service component at all, just because it’s awkward to not tip if confronted with the option. And that’s good enough to leave it on by default.
But this is self-limiting, a temporary social-dynamics arbitrage that will close: people inevitably figure out that they’re being asked to tip where it doesn’t make sense, and they get tired of it. If I’m going to a cafe, picking up a ready-made, plastic-wrapped salad, and the checkout terminal offers me a choice between a 15, 20, and 25% tip, that’s bullshit. There’s no service to reward; it’s just a rip-off.
(2) The Frogs Do Not Like Being Boiled
When I first started to pay for my own restaurant meals maybe fifteen years ago, I remember that a 10 - 15% tip was the norm. 12% was a normal tip for normal service. Maybe that reflected where I traveled and lived, and surely my social circles have changed now — but the amounts are creeping up. Some cafe owners set their Square checkout terminals to default 30, 35, 40% tips. Restaurant bills always pre-calculate a few tip options for me, and they’re never below 18%. It feels like the social norm has changed and somehow 25% is the “good” tip now. You can put the frog in water and boil it slowly, but eventually the frog will realize that the water has become hot and it’s going to jump out.1
(3) Money’s Gonna Get Tight
The above issues are tolerable in a bull market, in which everyone has lots of disposable income/savings, but that party is over. We’ve already seen a crunch in personal savings, we’re in a recession, and we’ll probably see a wave of personal credit defaults. People are just going to be tighter on cash, and paying a 20% tax on all your most common discretionary purchases is going to feel more and more unbearable. But people are not going to sacrifice modern conveniences. They’re not going to stop using Doordash. It’s too good. But they will stop tipping.
Conclusion
Young generations were already getting screwed economically, and they’re about to get especially screwed in the next 12-18 months by the macroeconomic environment. In an era of totally out-of-control student loans, car loans, etc. a lot of consumers are feeling financially overburdened and generally scammed. The above factors all come together with this general atmosphere, and the result is that consumers will get real squirmy about tipping.
It’s easy to rationalize, too. Pretty much everyone agrees that making two bucks an hour and being exposed to capricious customers for the rest sucks; restaurants should just pay their employees a living wage and tips should be bonus.2 That’s not a controversial ideology. It just needs to gain momentum.
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Contrary to popular belief, frogs will sit in water that is gradually being warmed up, but they will jump out when it gets too hot.
There is some regulation to this effect: employers have to make up the wages of service staff who weren’t tipped enough up to the minimum wage, but in practice this isn’t well-followed and staff get screwed on it all the time.