Why Tipping is Inefficient

I am not a fan of tipping.

I’ll go into some of my pet peeves around the practice, but I heartily recommend a much more reliable source: a series of blog posts from a restaurant owner who had two restaurants–one with a flat service charge and one with tips–and his thoughts on how tipping led to worse service.

In general, people think that tipping ensures good service, but I’ve never found that to be the case.

Problem #1: Most people don’t tip differently based on the level of service they receive.

I’m guilty of this myself. Honestly, the biggest variable in how much I tip is what’s the largest whole dollar number that’s less than or equal to 20% of my bill. If it’s really bad service, I might tip a little less, but I still never tip less than 15%.

Problem #2: Even if people were to tip based on the level of service they receive, the money doesn’t reinforce the service.

In sit-down restaurants, you don’t pay the bill until you’re done with the meal. Heck, you don’t even have to leave the tip until you’re leaving. So how is leaving a good tip supposed to ensure good service for what happens prior? The tip is supposed to be a “reward”, but unless you go to the same restaurant frequently and receive the same waiter and tip well enough to be remembered, tipping doesn’t actually ensure you better service unless your waiter decides to stereotype you into someone who might tip well prior to the meal commencing. It’d be better if you could wave a wad of cash in front of your server at the beginning of the meal to ensure good service.

Problem #3: Tipping incentivizes the wrong behaviors.

If you’re a waiter, the best way to increase your tips is not to provide better service (since most people don’t tip differently based on the service), but to increase the base off of which tips are calculated. This means 1) upselling and 2) increasing the number of tables you serve. I hate it when waiters try to upsell you, and it definitely decreases my enjoyment of the restaurant. And in order to increase the number of tables that a waiter serves, a waiter either needs to rush tables to turn over the table more quickly or be spread too thin to cover more tables. Both lead to worse service.

Ultimately, tipping is inefficient because it doesn’t incentivize good service; if anything, it incentivizes worse service (similar to how real estate commissions don’t incentivize good service… it incentivizes a real estate agent trying to get you to buy or sell a home). A better solution would be a fixed service charge, so that the waitstaff can focus on service, rather than on maximizing their short-term benefit of daily tips.