Abolishing Tips Could Screw Over Restaurant Owners, Customers, and Servers

A new economics study claims that tipping benefits pretty much everyone in the restaurant industry—not just servers, but restaurant owners, customers, and other workers.
April 17, 2016, 2:00pm

With a federal minimum wage of just $2.13 for tipped workers, it's no surprise that class action lawsuits pitting servers against major restaurant chains have been popping up left and right.

But with state laws finally authorizing significantly higher minimum wages for restaurant workers, some critics are calling for an end to the social practice of giving servers a gratuity. All of which begs the question: Is it finally time to get rid of tipping once and for all?

The answer is a resounding "no," according to Richard McKenzie, Professor of Economics and Management Emeritus at UC Irvine. In a recent study entitled Should Tipping Be Abolished?, McKenzie goes as far as claiming that tipping benefits pretty much everyone in the restaurant industry—not just servers, but restaurant owners, customers, and other workers.

READ MORE: A Ruby Tuesday's Waitress Wants to Change Labor Laws for American Servers

"At face value, abolishing tipping and offering higher wages instead sounds like a reasonable and necessary action, especially when you consider the federal minimum wage for non-tipped workers is $7.25 and the federal subminimum wage for tipped workers is at a measly $2.13 per hour rate," McKenzie said in a press release.

In his survey of 40 servers at "moderately priced or casual restaurants with table service," McKenzie crunched the numbers and realized they earn significantly more than what so-called "tip abolitionists" realize. He also argues that a heftier hourly wage is not the solution.

"However, my research shows that if tipping were to be replaced by a fixed hourly rate of pay, service would suffer significantly, and so might the earnings of the servers in question. In addition, the wage that the restaurant servers indicated would be acceptable was in the range of $30 an hour, not $15, which is the wage rate states are considering."

READ MORE: You Don't Need Laws to Figure Out How to Tip Me

In other words, well-meaning proponents of a $15 wage may be pushing for something that is not actually in the best interest of servers.

Furthermore, McKenzie suggests that data from restaurants that have abolished tipping is not very promising either: Owners had to raise prices by 20 percent in order to pay for their employees' higher hourly wages. Those same restaurants also lost 70 percent of their servers over a ten-month period because without tips their wage actually dropped from $35–45 per hour to $20–35 per hour.

In conclusion, it seems that the American pillars of friendly service and making money are far more intertwined than what many policy makers with good intentions have assumed. "Policy makers must understand [that] tipping is a pay mechanism that incentivizes servers to use their localized information for their own and their company's benefit.... Through tipping, servers effectively become commissioned salespeople, enticed to add to customers' experience and company sales. It's a win-win situation."

Of course, it's also a win-win for the servers who get paid in cocaine, solid gold, and group sex.