The New York Times ran an op/ed today by Phoebe Damrosch suggesting that by doing away with tipping we could make waiters more professional and give them better health care. The piece is about 75% fluffy restaurant staff stereotypes, the rest strange economics:
First, restaurants need to provide health insurance and retirement planning for their employees. One way to do this would be a service charge, as practiced in Europe, put toward paying a salaried staff. Would American diners be willing to give up tipping — and its illusion of control — if it meant providing benefits and a living wage for the people who cook and serve their food?
Tipping provides American waiters with an incentive to increase their check average by pushing bottled water, extra courses, expensive entrees and pricey wines and by showing guests the door as soon as they stop chewing. The service charge shifts the focus from the money to the experience. Instead of worrying about how much money she will take home that night — and upselling and groveling her way to that goal — a waiter can worry about doing her job well: making people happy at whatever price and pace they prefer.
I feel silly for having to point this out, but the source of servers’ income is the money paid by customers. Shifting from tips to a service charge doesn’t magically create more money with which to provide health and retirement benefits unless customers end up paying more or the restaurant reduces costs elsewhere (perhaps by cutting the number of servers working each night?). Damrosch doesn’t say anything about wanting restaurants to become more expensive and even suggests that without tipping customers would feel less pressure to spend or give up their tables, so I don’t see how this math is supposed to work.
What a service charge would do is give servers less say in how their income is spent. With tipping they can spend it however they choose and enjoy a nice bonus in the form of cash tips that can be partially hidden from taxation. With a service fee the income would be fully taxed or, as Damrosch presumably wants to happen, some of the income would be shifted into untaxed health insurance expenditures or retirement funds. This might be better in the paternalist sense of wanting people to plan ahead for their insurance and retirement, but it might not be welfare enhancing for the servers. It would put them in the same position as lots of other American workers: Spending more than is optimal on health insurance because of the tax subsidy, tied to their employer for fear of losing that insurance, out of luck if they lose their job, and with less income to spend on other things. As a restaurant worker myself, I say thanks but no thanks. I’d rather take the cash.
Damrosch is right that it’s hard to make a profession out of serving due to the lack of insurance. Fortunately there are simple alternatives that don’t require getting rid of tipping and that would benefit many non-restaurant workers who don’t have employer-provided health insurance. These include giving individuals the same tax breaks on insurance that employers receive, expanding the kinds of associations that can purchase group insurance, increasing competition across state lines, and expanding HSAs. These ideas aren’t sexy and European, but they’d benefit servers without locking them into their jobs or controlling their paychecks.