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Tipping Varies Widely, The Very Idea of Tipping Perplexes Economists

The Economist January 15th 2022 pp49-50 |International|Microeconomics|”The point of tipping” “Does it make for better service? The evidence is mixed-and attitudes vary widely across the world”


Read The Economist for all the details


Summary by 2244





Data presented in charts


Why tip?


A study by Ofer Azer, Ben-Gurion University 2010


Reasons given for “largess % responding” United States, Israel


It’s a social norm. ~80% US, ~60% Israel

Show gratitude. ~ 70% each US and Israel

Waiters depend on tips. ~ 70% US and ~30% Israel

Avoid feeling guilty. ~ 60% US and ~16% Israel

Avoid embarrassment. ~40% US and ~20% Israel

Get poor future service if no tip. ~17% US and ~2% Israel

Waiter may yell at me if no tip. ~3% US and zero Israel



A study by John A List, University of Chicago and others


Ride and prejudice, Change in expected tip for Uber drivers 2017, by age of driver and sex $


When compared with male driver aged 21-25 with male passengers


It turns out that younger male passengers with Female drivers tip most generously by 0.08 and that decreases with age with age group 35-44 at 0.04 and those 65+ zero


Male drivers with male passengers again show the age bias with older men at -0.02


Female passengers with female drivers seem more generous at age 26-34 and 35-44 but that’s from a baseline at 21-25 of -0.04


Female passengers with male drivers were the least generous fluctuating slightly but hovering around -.06 with females 45-54 and 55-64 being slightly less generous than younger, 21-25 and 26-34 and those 65+


Narrative


“Economists are puzzled by the fact that so many people give tips…when it is assumed that customers want to pay as little as possible for what they buy. But fuzzier factors also seem to matter, like the feelings of gratitude…” and these feelings have increased during the pandemic “that people have been tipping more generously even while ordering take away food…” Tipping for cab rides in rich areas have reportedly increased as well “in effect doling out danger money, as tipping rates rose along with covid-19 hospitalization rates.”


Sadly, with respect to taxi services “black drivers were tipped on average 13%, while white drivers got 20%.” One study showed that “female Uber drivers were tipped 10-12% more than male ones, but not if they were over 65.”


Tipping habits “vary vastly across the world.” In many European countries “a service charge is included in the bill…in some Asian countries, tipping is…frowned upon…[and maybe viewed]...as insulting…in Japan and South Korea.” “Where the gap between the prosperous middle class and the poor is often huge…[like in India and Africa]...tips are most certainly expected.” This held true in a study of 30 similar economies.


Certainly with Uber and other APPS that provide ratings of passengers there is the worry that a low rating, as a tipper, will make “it harder for them to catch a cab in the future.” In general, there is a sense that a tip will improve future service even though customers may not be regulars or likely to be repeat customers. “One study finds that quality of service explains a variation of no more than 5% in the size of the tip.” With UBER only “15% of trips are tipped” and the passenger’s attributes “proved three times more relevant than those of the driver when explaining the size of the tip.” Management does endorse the idea that “as long as servers think their tips will dip if their performance is poor…[tips] will have the desired effect.”


Tipping servers in restaurants, where not disallowed by law-NY and DC cited, may be shared with the rest of the team including management. Tipping though may constitute between 20-60%” of a server’s income in some locales. High tide raises all boats, when business is brisk all are rewarded but when business is slow servers feel the brunt as much of their income depends on tips-not so the others. Cash tips but less so card payments can help all receiving tips to underreport on income and in doing so avoid some income tax.


“Critics say tipping is an unfair practice that leaves workers fawning for favors, confuses customers about the real price they can expect to pay, and encourages tax evasion.” Having said that survey data indicated “60% of [Americans] preferred tipping to a modest service charge.”






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