Restaurant Econ 101

The economic logic in Friday’s NYT op/ed about restaurant service charges was a little off, but it’s nothing compared to the crazy thinking in the only letter they published in response to it:

Waiters need a strong union to negotiate with restaurant owners for a realistic pay scale and other benefits. Diners should not pay for them.

Eating in a quality restaurant costs four or five times as much as cooking at home. The food itself isn’t expensive. It costs more because it is cooked for us and served. The bill includes those costs. Therefore, a tip or a service charge is redundant, asking diners to pay a second time for service costs that are already included in the price of their meal.

Instead of changing the name from tip to service charge, the diner should not pay either.

People, restaurants are businesses. They pay their employees by receiving money from customers. They can get that money through tips, by adding a service charge, or by working it into the cost of a meal, but ultimately it’s all coming from the same place. If you’d prefer that restaurants operate as charities for creative types in need of a day job, please, just come out and say so!

[Would it be petty to mention that the letter writer lives in Berkeley? Yes, it probably would!]

Comments

  1. Jim says:

    Note from a horrible hippie:

    I’m agreement with this post and the other you wrote on tipping. But rather than just discounting the MBA-deficient commenter, maybe an explanation about where the money does go is in order. (I might add that such an explanation would allow you to use restaurant econ as a “teachable moment” from a libertarian standpoint.)

    What I mean is that readers of this blog are probably aware that things like rent, licensing fees, insurance, short–among other expenses–make operating a restaurant a remarkably low-margin enterprise. I don’t think the hippie in question is advocating making restaurants charities. They just seem ignorant about what it takes to run a restaurant. The same general short-sightedness infects even people that actually open restaurants so I think it’s a forgivable error.

  2. Jacob Grier says:

    @Jim: True, though I don’t have any particular expertise in that. But one of the things that did bug me about the letter is the perception that restaurant owners are rolling in money while their employees barely get by. Especially over the past year and half, that’s not true for many, and more restaurants than people realize are probably operating at a loss right now.

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