Why Tipping Is So Out Of Control In The U.S.

Summary

The tipping culture in the US has seen a significant rise, with consumers now tipping 15-25% on average, up from historical norms. The term 'tipflation' has emerged, reflecting the pressure to tip more and more frequently, even in situations not traditionally associated with tipping. Technology, such as payment tablets, has made tipping easier but also more expected, with preset tip amounts influencing consumer behavior. However, there's a growing resentment among consumers and concerns about the sustainability of this tipping culture, with some advocating for its abolition.

Takeaways

• 😕 Tipping culture has become pervasive, with customers being asked for tips in various service scenarios, including drive-throughs.
• 📈 The percentage of tips has increased over the decades, with the average tipping rate in 2022 being over 21%.
• 📊 'Tipflation' refers to the phenomenon of increased tipping amounts and frequency, with technology like tablets and apps making it easier to suggest and collect tips.
• 💡 The origin of tipping dates back to medieval Europe and has evolved over time, with the U.S. being one of the few countries where tipping is customary and not included in the service charge.
• 💼 The federal minimum wage for tipped employees in the U.S. has remained at $2.13 since 1991, which is significantly lower than the standard minimum wage.
• 🌐 The pandemic has influenced tipping behavior, with an increase in remote transactions and a higher percentage of customers opting to tip.
• 📱 Technology, particularly POS systems from companies like Square, Toast, and Clover, has made it easier for businesses to suggest and receive tips, potentially contributing to the rise in tipping.
• 🤔 There is a growing consumer sentiment of resentment towards tipping, with some feeling pressured to tip more than they are comfortable with.
• 📉 Inflation and the constant prompting for tips have led some customers to tip less or not at all, affecting service industry workers who rely on tips as a significant part of their income.
• 🔍 There is a debate on whether the tipping system should be reevaluated, with some advocating for the abolition of tipping in favor of service charges included in the bill.

Q & A

What is the current tipping culture like according to the transcript?

The current tipping culture is described as being out of control, with people being asked to tip at every opportunity and for services that are not traditionally associated with tipping.

What historical percentage did people commonly tip at during the 1950s?

During the 1950s, people commonly tipped 10% of the bill.

How has the average tipping percentage changed from the 1970s and 1980s to today?

By the 1970s and 1980s, the average tipping percentage jumped to 15%, and today people tip anywhere from 15% to 25%, with a 2022 survey indicating an average of more than 21%.

What term is used to describe the phenomenon of being asked to tip more and for more services?

The term used to describe this phenomenon is 'tipflation'.

How has technology, such as tablets and kiosks, influenced tipping behavior?

Technology has made it easier to present tipping options and suggest tip amounts, which can lead to consumers feeling pressured to tip more than they normally would.

What is the current federal minimum wage for tipped employees in the United States as of March 2023?

The federal minimum wage for tipped employees in the United States as of March 2023 is $2.13.

How has the coronavirus pandemic affected tipping habits?

During the coronavirus pandemic, consumers started tipping for services they never had before, and the percentage of remote transactions with tipping increased significantly.

What is the impact of businesses asking for tips before service completion?

Asking for tips before service completion can create a sense of obligation or even a feeling of a bribe, potentially leading to customers tipping more out of fear of receiving lesser quality service.

What are the three prominent companies mentioned in the script that have contributed to the increase in tipping?

The three prominent companies mentioned are Square, Toast, and Clover, which have developed point of sale systems that make it easier for businesses to gather tips.

How do the new tablet systems for tipping change the consumer's experience compared to traditional tip jars?

The new tablet systems make it more difficult to avoid tipping as consumers have to actively choose not to tip, whereas with traditional tip jars, not tipping was more of a passive omission.

What is the potential danger of the current tipping culture according to the transcript?

The potential danger is that consumers may start tipping less or not at all due to resentment or feeling overwhelmed by the constant requests for tips, which can hurt those who rely on tips as a significant part of their income.

Outlines

00:00

💸 Tipping Culture and Its Evolution

The script discusses the pervasiveness of tipping in modern society, noting that it has become increasingly common and expected. It traces the history of tipping from the 1950s, where 10% was standard, to the present day where 15% to 25% is typical, with some considering 20% as low. The term 'tipflation' is introduced to describe the phenomenon of being prompted to tip more frequently and for a broader range of services. The script also touches on the historical origins of tipping, from medieval Europe to the 19th-century United States, and how it has become ingrained in the service industry, with the U.S. being unique in allowing employers to pay tipped workers less than the minimum wage.

05:02

📈 The Impact of Technology on Tipping Trends

This section delves into how technology, particularly point-of-sale systems like Square, Toast, and Clover, has influenced tipping habits. These systems often suggest tip amounts, which can pressure customers into tipping more than they might otherwise. The convenience and prominence of these systems have made it easier for businesses to collect tips and for customers to tip, but they have also made the act of not tipping more noticeable. The script suggests that these technologies may be partially responsible for the increase in tipping amounts and the expectation to tip for services that were previously not tipped.

10:04

📉 Economic Factors and Changing Tipping Behavior

The final paragraph addresses the economic factors affecting tipping, such as inflation and the pandemic's impact on consumer behavior. It notes that some consumers are tipping less due to financial pressures, while others are tipping more out of generosity or because of the increased use of tipping prompts. The script also points out that the pandemic led to a temporary increase in tipping for services like food delivery. However, there is a growing sentiment among consumers to abolish tipping altogether, with 60% of Americans surveyed expressing this desire. The paragraph concludes by questioning the sustainability of the current tipping culture and the potential for a societal shift away from it.

Keywords

💡Tipping culture

Tipping culture refers to the customary practice in certain regions, particularly the United States, where customers give gratuities to service workers such as waitstaff, bartenders, and others for their service. In the video, it is discussed as having 'gotten out of control,' indicating a societal issue where tipping is becoming more expected and even demanded in various scenarios, including drive-through services.

💡Tipflation

Tipflation is a term coined in the script to describe the phenomenon where the expectation and frequency of tipping are increasing, leading to inflation in the amount of tips given. This is likened to economic inflation but specifically applies to tipping practices. The script mentions how this is seen nationwide, with technology like tablets at payment points prompting for tips, often suggesting higher amounts.

💡Full service restaurants

Full service restaurants are establishments where customers are seated and served by waitstaff. In the context of the video, it discusses how the percentage of consumers tipping at these restaurants has remained consistent, but the actual number of tips has increased by 17% in the fourth quarter of 2022, indicating a growing trend in tipping behavior.

💡Quick service restaurants

Quick service restaurants, such as coffee shops and fast food chains, typically involve customers ordering and paying at a counter and then receiving their food. The script notes a rise in tip frequency at these establishments, suggesting that the tipping culture is expanding beyond traditional service settings.

💡Tip jars

Tip jars are containers, often placed near the cash register, where customers can leave tips voluntarily. The video script contrasts the old-fashioned tip jars, which allowed customers to contribute spare change without pressure, with the more intrusive digital tipping methods that suggest specific tip amounts.

💡POS systems

Point of Sale (POS) systems are electronic systems used in businesses to process transactions. Companies like Square, Toast, and Clover have developed POS systems that include tipping features. The script suggests that these systems have made it easier for businesses to gather tips and have contributed to the rise in tipping expectations.

💡Tipped minimum wage

The tipped minimum wage is a lower minimum wage rate that applies to employees who customarily receive tips, such as waitstaff. The video explains that in the United States, this rate is set at $2.13 per hour, and it has not changed significantly since 1991. This practice is unique to the U.S. and is criticized in the script as it places the onus on customers' tips to supplement workers' income.

💡Service charges

Service charges are mandatory fees added to a bill to cover service, and they are distinct from tips, which are optional. The script contrasts the practice of tipping in the U.S. with the use of service charges in Europe, where tipping is less common because service charges are often included in the bill.

💡Inflation

Inflation refers to the economic concept where the general price level of goods and services in an economy increases over time. In the video, it is mentioned that inflation, along with the pressure of being prompted for tips frequently, has led some customers to tip less, affecting service workers who rely on tips as a significant part of their income.

💡Gratuity

A gratuity is a sum of money given to someone, typically a service worker, for a service performed. The term is used in the script to discuss the historical origins of tipping, which may have started as a way to ensure promptness or safe passage. It also touches on the current debate about whether tipping should be considered a mandatory part of service costs rather than a discretionary reward.

💡Discretionary

Discretionary in the context of the video refers to the optional nature of tipping. It contrasts with mandatory service charges and highlights the debate over whether tipping should be a customer's choice or a required part of service industry compensation. The script suggests that as tipping becomes more expected, it moves from being discretionary to almost obligatory.

Highlights

Tipping culture has become ubiquitous, with customers rarely making a purchase without being asked for a tip.

Historical tipping rates have increased significantly, from 10% in the 1950s to 15-25% today.

A 2022 survey revealed that consumers tipped an average of over 21%.

Despite similar tipping percentages, the number of tips and their frequency have increased notably in recent years.

The term 'tipflation' describes the phenomenon of increased tipping expectations and frequency.

Technological advancements, such as tablets, have made tipping more prominent and sometimes obligatory.

The origin of tipping is rooted in medieval Europe, with a history of ensuring promptness and safety.

In the 19th century, tipping became a way to supplement wages for waitstaff, particularly women and newly freed slaves.

The U.S. is unique in allowing tipped workers to be paid below the standard minimum wage.

The COVID-19 pandemic led to an increase in tipping for services like food delivery, setting new expectations.

New technologies, such as kiosks and tablets, have made it easier for businesses to suggest and receive tips.

Some businesses have seen higher and more frequent tips by using modern POS systems like Square, Toast, and Clover.

Consumers feel pressured to tip within suggested ranges, which can lead to higher tipping amounts.

The new tipping culture has turned not tipping into an active decision, rather than a passive omission.

Some businesses see tipping as a way to improve service quality and employee performance.

Large companies like Starbucks have adopted tipping features to stay competitive.

There is a risk of customers becoming resentful and tipping less as tipping becomes more common and expected.

Inflation and the pressure of frequent tipping prompts have led some customers to tip less or not at all.

A significant portion of Americans are in favor of abolishing tipping culture entirely.

The tipping invasion is seen as a net negative for society, with concerns about where the tipping point will be.

Transcripts

When was the last time you purchased something

and you weren't asked for a tip?

Yeah, I can't remember either.

Tipping culture has gotten out of control.

I get up to the pay window and she's like,

How much do you want to tip? What am I going to

tip you for?

I'm in the drive through.

Oh my God. Tips have been on the rise for

decades. During the 1950s, people commonly

tipped 10% of the bill.

By the 1970s and 1980s, that jumped to 15%.

Today, people tip anywhere from 15% to 25%.

According to one 2022 survey, consumers said

they tipped more than 21% on average.

Nowadays, there are people who argue 20% is

kind of a cheap tip.

While the percentage that consumers are tipping at

full service restaurants in the past couple of

years has remained about the same, in the fourth

quarter of 2022, the number of tips provided

at full service restaurants grew 17%.

Meanwhile, the tip frequency at quick

service restaurants such as coffee shops and fast

food chains rose 16% during the same time

period.

What we're seeing now nationwide is something

that is known as tipflation.

At every opportunity, we're being presented

with a tablet that's asking us how much we'd

like to tip.

In many cases, not only replacing the old

fashioned tip jars that you could feel good about

throwing some spare change into, but actually

suggesting tip amounts, often right in front of

the employee receiving that tip, not to mention

also your dinner date and the dozen or so

people standing behind you in line.

And it's gone beyond just the tablets.

The other day I was using the Hopper app to

book a hotel, and it wasn't until I confirmed

my payment that I realized my hotel was $10

more expensive.

It turns out, Hopper assumed I wanted to add a

tip and I had to go back to a prior page in order

to opt out. Tipflation refers to not just that

we're tipping more, but we're tipping everyone

for everything.

You're being guilted into tipping on something that

is not technically a service.

Someone simply doing their job.

In those situations, consumers are feeling

resentful. Where do you draw the line?

Tip stands for "to ensure promptness." Tipping may

go back as far as the Roman era, but according

to most experts, the practice likely has its

origins in medieval Europe.

Noblemen taking passage on roads would throw

coins to the rubble to ensure safe passage.

One theory is that it evolved in eating and

drinking establishments as a way to forestall

envy that when you're eating and drinking,

you're having fun and the people who are

serving you are not.

Fast forward to the 19th century when waiters who

received a full wage went on strike demanding

higher wages. They were replaced with women who

employers could pay less. A decade later,

there was the population of newly freed slaves.

The idea from these restaurant owners was

that they were giving the luxury or privilege

of a white person's tips .

That was without a full wage.

Ironically, as tipping exploded in the United

States, it became less common in Europe and was

replaced with service charges.

While the first federal minimum wage law was

passed in 1938, it wasn't until almost three

decades later when the tip minimum wage was

established. In 1991, the federal minimum wage

for tipped employees was set at $2.13, which is

what it remains at as of March 2023.

As far as I know, the United States is the only

country that exempts tipped workers from

having to receive the full minimum wage.

In 43 states, it is legal to pay tipped workers

less than the standard minimum wage because tips

presumably make up that difference.

In recent years, you might have found yourself

asking, Do I tip this barista for pouring that

hot coffee? What about when I'm going to a

restaurant and picking up takeout?

And how much do I tip that doorman, driver or

dog walker? When those in the service industry

were feeling the brunt during the coronavirus

pandemic, consumers started tipping for

things they never had before, and the

percentage of remote transactions when tipping

was an option in which the consumer tipped

soared from about 46% before the pandemic to

around 86% in January 2022.

If people were willing to tip the person

delivering food to their home 30%, why not ask if

they'd like to tip when they come pick up?

During the pandemic, businesses who lost a lot

of traditional customers and transactions were

looking for alternative ways to make up that

income. And if asking for tips was one way to

do it, they were willing to try it.

And since then, that ask hasn't dissipated.

Another reason consumers say they feel pressured

to tip more? They're being asked to tip prior

to service completion.

Asking for a tip beforehand is almost like

a bribe, right?

It's, I'm afraid not to tip because would you do

less good work?

Customers might not be concerned about the

barista's perception of their tip before getting

their latte, but what about the mechanic

repairing your car?

I don't know about you, but I'm certainly going

to make sure to tip them well to ensure my safety.

Another reason consumers are tipping more: newer

technologies.

Kiosks and tablets with three large tipping

suggestions that pop up on the screen in front of

you. Three Options chosen by the business.

I have not yet been to the restaurant where they

recommend 5, 10 or 15% for quick takeout.

It normally always starts at 15 as a bare

minimum, sometimes even starting at 20, 25 and up

to 30.

According to a 2022 CreditCards.com survey,

22% of respondents said when they're presented

with various suggested tip amounts, they feel

pressured to tip more than they normally would.

They use those options as an indication of kind of

what the normative range is and feel compelled to

tip within that range.

So the more you ask, the more you get.

The three prominent companies with that

trendy, sleek look are Square, Toast, and

Clover. They launched a bit more than a decade

ago to help businesses run smarter, faster and

easier, all in one point of sale or POS systems.

In some cases, fewer fees so it's less of a

burden to accept multiple credit cards, no

long term contracts and multiple other useful

tools, including inventory and employee

management.

They got credit card processing into the hands

of individuals and very small merchants.

Square did a great job and it's been a

tremendous growth story.

That's half of the business today.

Do you think these companies are responsible

for this turn of events that we've seen with

tipping?

I would say they could take some of the credit

for helping restaurants gather more tips.

Robert Sanchez manages Eli's Essentials in New

York City. One of the business's locations uses

Toast while the other uses this.

He says the storefront that uses Toast sees more

and higher tips.

The Clover, Square and Toast terminals to a

consumer are very easy to use.

Big buttons, big areas to sign the tip, and easy

way to tip a different amount if you don't like

the starting at 20% option.

There are others that do it.

They're just not as cool looking.

We've come a long way from being able to just

throw your spare change into the jar by the cash

register.

The new tablets have turned what used to be a

sin of omission, I simply didn't put money

into the tip jar, into a sin of commission.

I have to hit a button and say no tip.

I have to actively choose not to tip.

Whereas before, not tipping was a kind of a

passive thing.

Glancing at the tip jar could have also been a

way to get a sense of how many others are

tipping on that service and maybe even how much

money. Meanwhile, not only can the tipping

options be customized, but the tipping feature

can be disabled as well.

So it's the merchant's choice to ask or not to

ask for tips.

From the business side, it makes employees want

to perform better and do a better job.

It's seriously significant.

It really pays for the software.

You'd be a foolish business owner not to

install it based on what the numbers display.

Even a mammoth company as large as Starbucks has

decided that they need to sink or swim.

And the best way for them to do that is to

offer the tip screen.

Starbucks rolled out the tipping feature in stores

in September 2022.

It's one thing to have a happy staff.

It's another thing to have customers that are

feeling resentful.

I think it's a calculus that all business owners

really need to make.

Do you think that they're somewhat going to start

seeing that they're getting lower tips

because people are paying tips to so many

services or they're resentful of the act of

tipping in general?

I think that's a very real danger.

Servers in a sit down restaurant, they were

greatly affected during and immediately

post-pandemic by restaurants doing all

sorts of fees.

Their tips were actually going down because

consumers were saying, well, if I'm paying for

their health insurance and I'm paying for

inflation and I'm paying for this and I'm paying

for that, enough is enough.

The more you levy these line items onto

consumers, guess who's being penalized?

It's the one area that's still quasi

discretionary, which is the tip.

I went door to door talking with waitresses,

bartenders and baristas, and while they wanted to

remain anonymous, they told me it's happening

already. With inflation and being prompted for

tips left and right, they say customers have

already started to tip less and sometimes not at

all. A 2022 study found that 17% of Americans are

tipping less because of inflation. However, 10%

report tipping more.

At the same time, more than half of Americans,

or 60%, want to do away with tipping entirely.

The extent of pandemic-influenced

generosity has also gone down.

43% of consumers typically tipped servers

20% or more in 2022, compared to 56% of

consumers in 2021.

Meanwhile, the average tip for full service

restaurants has gone down only slightly during

the same time period.

According to Toast, 19.6% in the fourth quarter of

2022, compared to 19.8% in 2021.

However, according to surveys conducted in

those same years, respondents said they're

tipping higher percentages: 21.2% and

18.9%, respectively.

It can genuinely hurt the people who truly, truly

rely on gratuities for their livelihood.

I firmly believe that the tipping invasion we

are experiencing right now, I think it's a net

negative for society.

And with that tablet at just about every counter,

no matter where you go, the question is, where is

the tipping point?

I'm wondering how long before I'm tipping my

doctor after an annual physical?

If you want to seem especially generous after

an exceptional meal, you might decide to go big

and tip 30%.

But it's a cycle.

As more people seeking to make a good impression

then up their tips to 30%, maybe even 35%.

What becomes a generous tip?

I have to believe tips are going to go up from

where they are today.

But I also think there's got to be a logical

ceiling somewhere.

I just don't know where it is.