Thursday, November 06, 2008

Tipping and inflation 

My colleague Orn Bodvarsson is quoted in a WSJ article on tipping.
Orn Bodvarsson, an economics professor at St. Cloud State University in Minnesota who has researched tipping, says tipping encourages special service. Thus, employers like retailers and airlines that want uniform service often ban or discourage tipping. "If people are handing out better tips, it encourages some people to get better service than others," he says.

OK, I can understand that. So why don't we tip doctors, since medicine is an area in which specialized service can make a huge difference? One reason, says Dr. Bodvarsson, is that "you don't know how well the medical doctor has performed the service until later."

Then there are jobs where tipping has only taken hold in recent years. Take people working at a takeout counter. Tipping used to be rare. Now the tip jar is pretty standard, though many customers ignore it.

Dr. Bodvarsson theorizes it's because wages in many of these jobs haven't kept up with inflation. In essence, the employer, rather than raising salaries, is allowing customers to pay compensation directly to workers.
Much of Orn's research can be found here. I have an alternative explanation for tipping at takeout windows: Part of my tip to a server is solving a principal-agent issue between the server and the cook. (#1 son is a cook; his #1 problem at previous jobs wasn't the chef or manager but crabby waitstaff. Currently he has the nicest waitstaff I've ever met.) We get more out of take-out windows now, and so more agency issues.

However, about the doctor: The Mongolian BBQ place in town has two tipping opportunities: There's a jar by the end of the line when you receive your grilled food, and another for the server (who has brought drinks, cleared plates and upsold you a dessert you shouldn't have ordered.) I tip both folks -- usually a buck or two for the grill guy, another buck or two for the server. Yet I don't know how good the food is when I tip the grill guy, because I haven't tasted it yet! So why am I tipping him?

Labels: ,