Pitting Poor Against Poorer in the Fight for Tips

There’s been a lot of talk about tipping lately, and for good reason. Danny Meyer, a famous name in the New York City restaurant scene, has recently declared he will get rid of tipping at all 13 full-service Manhattan restaurants his company runs, starting in November. The reasons for his controversial decision are in some ways specific to New York, but will likely generalize to other restaurant owners. It might, in fact, be the beginning of a revolution. And given that 2.5 million Americans work as waiters or waitresses, this is a big deal.

By the Numbers

To understand how money works in a restaurant, you have to imagine the job of a restaurant manager. That’s the person who sets the price of the menu items, on the one hand, and the budget of expenses, on the other. If you set aside the cost of rent and ingredients, the main items on the budget consist of two groups of workers: the front of the house, people like waiters and waitresses; and the back of the house, namely the kitchen staff.

The fact that front-of-house restaurant employees get tips means that their base pay is relatively negligible. In fact, they are paid a small hourly wage of $2.13, federally mandated and unchanged since 1991. Other than this small base pay amount on the restaurant’s ledger, these employees don’t show up as expenses – the waiters and waitresses get taken care of through tips. In other words, a restaurant manager’s job is essentially to make sure the menu items are expensive enough to pay for the back of the house – the cooks and line chefs.

Many hardworking waiters and waitresses do not want this system to change and to be sure, there are good things about the American tipping system. For many in the profession, waiting tables represents a living wage, especially in higher-end restaurants where the alcohol flows freely. There are built-in incentives for a waiter as well: If he can convince a table to order another round of drinks, an expensive wine, or a fancy steak, he can typically rely on getting a higher tip, since it is conventional to tip a fixed percentage of the meal. Finally, depending on what kind of clientele a given restaurant has, sometimes the tips are truly enormous and the waiters and waitresses can enjoy the occasional windfall.

But now comes the bad news. Tipping is notoriously racist and sexist, and it doesn’t even correlate very strongly to good service. Female servers are paid around 68 percent of what male servers are paid, partly because they don’t get hired at high-end restaurants. And the single biggest issue, which holds true at nearly all restaurants, is the class differences between the kitchen and the wait staff. If you’ve ever been to a restaurant with white waiters and Latino busboys, typically making minimum wage, you know what I’m talking about.

Danny Meyer told NPR that in his 30 years as a restauranteur, the average compensation for cooks has gone up just 22 to 25 percent, while “waiters’ income in a fine-dining restaurant has gone up well over 200 percent.” Given the economics of restaurants described above, it means that if an owner wants to pay their kitchen staff better than their current $12 or $13 per hour, they need to raise menu prices substantially, which in turn raises tips even more. There’s little a manager can do about that short of getting rid of tipping altogether. And given a recently declared chef shortage across the restaurant industry, this is a real problem.

The Cost of a Living Wage

The problem is made even more urgent because of recent local minimum wage laws coming into effect. In New York, fast-food workers will be earning at least $15 an hour – or $30K a year, if they work full-time – as of 2021. If that seems like a long time, keep in mind that wages have been stagnant for the past few decades. If nothing is done, in other words, the next few years will see restaurants losing their chefs to McDonalds.

As a society perhaps we’ve outgrown this pseudo-aristocratic system. We all know someone who would sorely miss the chance to feel like a little lord for a few minutes, having someone wait on them and anticipate their every need, but it’s become socially unacceptable to be that person. Maybe we should become more like the modern (continental) Europe and less like the old one and obliterate the obligatory tip. After all, countries with more tipping tend to have more corruption.

Hold on, though, not so fast. From the customer’s perspective, there is one excellent and simple reason to want to keep the current system as is: it’s cheaper. The tipping system keeps the prices of menu items low, because most tip income is not declared as income come tax season; it’s part of the underground economy. Once tipping is obliterated, our menu prices will not just incorporate the service charge, they will also include the tax on that service charge.

On the other hand, we may be paying too little for our food, at least when we compare to historical budgets. Nowadays the average American spends only 11 percent of her monthly budget on food, including dining out, which she does increasingly often, whereas 30 years ago she spent 17 percent – nevermind the fact that in the year 1900 Americans spent a full 43 percent of their budget on food. It’s not just modernity, either. We spend half as much money on food as people do in France, for example.

We Can Do Better

The problem with this debate is that we are making the usual mistake: We are pitting poor against even poorer, servers against kitchen staff. It’s not entirely our fault as consumers, given the nature of the US restaurant industry — but we can do better.

We’ve gotten to the point where we’re demanding a delicious and gracefully presented product but we’re not willing to pay people a living wage for creating it. That would be reasonable if there were machines building our meals, like there increasingly are in fast food. But across most of the restaurant industry, food preparation and presentation is a very low-margin, human intensive business that isn’t easily automated.

Although we’re talking about restaurants today, we should think about this as the first of many discussions we’ll be having about work and pay in the 21st century. Eventually many or even most jobs will be threatened and then destroyed by automation, and the average person might well be working in the service of others. I might drive an Uber cab during the afternoon, only to meet up with my life coach in the evening. If we don’t value service to each other, we will all end up impoverished.

I, for one, would like to see our country become one where, say, keeping an elderly person company is well compensated. The first step is to support living wages for restaurant workers, starting with a ban on tipping and good hourly wages for all.

The views expressed in this post are the author’s alone, and presented here to offer a variety of perspectives to our readers.