Wednesday, December 2, 2009

Economist's Notebook: Tipping

I was working at the OSU Portland Center offices yesterday and decided to lunch at the nearby Kenny & Zukes. When my credit card receipt came I encountered something new: a handy-dandy guide to help me calculate an appropriate tip. (Blurry photo provided above) Tipping after a meal is a well-known economic paradox: if you are not a regular there is no incentive to reward good service after the fact (this is the subject of one of my all-time favorite New Yorker cartoons). But in this case I was more amused about the decision to include the guide on the receipt and the particular choice of which percentages to list.

First, the decision to include the guide is an interesting one. My guess is that people who have difficulty calculating tips will deliberately err on the side of generosity, and so it is more likely that people will tip more, not less, if they are not mathematically inclined. So putting a guide on the receipt may in fact reduce tip income all else equal.

But all is not equal. In the US 15% is considered a pretty standard tip, a default if you will. My personal default is closer to 20% because I have lived on tips before, but I am also a believer in incentives and even if it is only to help the next customer rather than me, I will signal good and bad service through my tip. So if the service is really bad, I will tip 10% - which is a generally accepted bad tip. So it is interesting that they do not calculate 10% for you, they start at 15% and go to 25%. I imagine that this serves to reset customers expectations about what a good and bad tip is. It resets the equation in your head and gives you the idea that 15% is a low tip, 20% is a average tip, and 25% is a good tip. I also imagine that it works pretty well.

So the net effect is, I would guess, an increase in the tip income of servers at K&Z. Nice.

By the way, I had already calculated my tip before I realized the little guide existed (the picture is of the customer's copy) - my tip: $2.50.

As another aside, this is probably much more effective in Oregon where the sales tax does not provide a guide. In states with an 8% sales tax, say, doubling the tax is a pretty handy way to figure it out.


Jeff Alworth said...

My guess is that there are few people offering 25% tips in this economy, and I wonder if this might not backfire. What you want is more people in your restaurant, not fewer. If one is expected to shell out a 25% tip, one outcome is that they would dine in more often--or hit an Ole Ole for a $5 burrito instead.


Jessica said...

Wow. If I have the misfortune of encountering this, the server can count on only a 10% tip. Tips are not mandatory and I generally happily tip 20% for good service. I find the tip guidance to be incredibly tacky and a bit insulting. Good way to get a bad tip and no repeat business in my book.

Anonymous said...

Jessica, by your logic you'd gladly hurt the server, despite their performance, because of something they had nothing to do with! How can you fault your server and give them an automatic 10% (with your statement of happily tipping 20% for good service) because of something the RESTAURANT saw fit to put onto the receipt?

With the economy as it is today, many people don't bother tipping at all, and blame the restaurant for not paying proper wages. That's a debate for another day though, because until restaurants change their payroll ways, WE STILL RELY ON THOSE TIPS TO SURVIVE.

Also, for those clinging to the old acronym of "To insure proper service", clearly you have all been misguided, especially if you're never going to come back to the restaurant in question. Like it or not, agree with it or not, unless the service is horrible, by giving a bad tip you're screwing your server.

And the service is never as bad as it's made out to be..

Anonymous said...

Just as an update (because I can't edit my old comment), I just want to say that as a server myself, not all of us agree with those tip guides being included on the bill.
RagewithRibeye Forums

Jeff said...

Um, it seems to me that this could be tested pretty easily. Have a cash register randomly print out receipts without a tipping guide or guides with several different selections of tip suggestions: for example ... 10-15-20, 10-20-30, 15-20-25, 15-25-35.

All you have to do is add up all the tips for each ticket type.

Patrick Emerson said...


That is a great idea.

So, any restaurant owner out there willing to try?

Rosey said...

I agree the tipping guide is tacky.

As the Oregon Economist, you are remiss not to mention that in most states other than Oregon, minimum wage for those receiving tips (waiters, bartenders, busboys)is around $2 and change per hour. So by requiring the Oregon minimum wage of $8.50, labor cost for servers in Oregon bars and restaurants is almost 4 times the national average! Undoubtedly this is/has been forcing many establishments to close their doors.