Why Do We Tip?

Why do we tip? And how did paying someone extra for doing their job become such a complicated part of everyday life?

In this episode of Wait... Why Do We Do That?, we uncover the strange and surprisingly controversial history behind tipping.

America didn't invent tipping. In fact, when the custom first spread from Europe, many Americans absolutely hated it. Critics called it aristocratic, unfair and even un-American. Some states went as far as trying to ban it.

So how did a practice people once wanted outlawed become so deeply embedded in American life?

We'll explore tipping's uncomfortable history after the Civil War, its connection to service workers and wages, the rise of the federal tip credit, and how 15 percent somehow became 18... then 20... and occasionally a payment screen suggesting 30 percent without the slightest hint of embarrassment.

We'll also look at why tipping works so differently around the world, whether it really rewards better service, why restaurants struggle to eliminate it, and how the humble payment tablet created an entirely new phenomenon: tip creep.

Because nothing makes a confident adult question their moral character quite like buying a coffee and being handed a screen asking:

18 percent?

20 percent?

25 percent?

No tip?

Choose wisely.

Because apparently, there's a reason for almost everything.

Even if it isn't a particularly good one.

Transcript

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SPEAKER_00 0:07

You're listening to Wait, why do we do that? The strange stories behind completely normal things. This time, Why Do We Tip? Now to explain the origin of it all, here's your host, Steve.

SPEAKER_01 0:23

You've ordered a coffee, that's it. One coffee. You walk to the counter, you say what you want, someone makes it, you insert your card, and then the screen appears, 18%, 20%, 25%, custom tip, no tip, and suddenly you're taking an ethics exam. The employee is standing approximately three feet away, you know they can see you. They know you know they can see you, and the little screen is sitting there saying, Go ahead, Steve. Show us what kind of person you really are. You haven't even tasted the coffee yet? It could be terrible, doesn't matter. The screen needs an answer. And there's always that little moment when they turn it toward you and say, It's just going to ask you a question. A question? No. Would you like a receipt? Is a question. This is a character assessment. And Americans now encounter this everywhere. Restaurants, coffee shops, bars, hair salons, hotels, food delivery, ride shares, takeout counters, sometimes places where you're not entirely sure what service you're tipping for. I recently bought something from a counter. I picked it up, I carried it to the register, I paid for it, and the machine asked me for a tip? At that point, I felt I should probably tip myself. But tipping is deeply embedded in American life. We do it constantly. And yet the rules are remarkably unclear. Who gets tipped? How much? Before tax or after tax, do you tip for takeout? What about bad service? And why are we calculating part of someone's compensation at the end of dinner anyway? So wait, why do we do that? Let's start with something slightly surprising. America didn't invent tipping. The practice has much older European roots. Exactly where tipping began is debated. One commonly told story connects it to aristocratic households in Europe, where guests might give money to servants who had provided personal service. By the 18th and 19th centuries, tipping was established in parts of European society. Then wealthy Americans traveled to Europe. They encountered the custom, and some brought it home, which immediately created a problem. Other Americans hated it. And I don't mean I wish the tablet would stop asking me for 25%. I mean they really hated it. Tipping seemed un-American. Europe had aristocrats, servants, rigid social classes. America had supposedly rejected all that. We had a republic. Citizens were equals. So the idea that one person would casually hand another person a few coins for good service felt to some Americans like importing European class hierarchy. Basically, we fought a revolution so I wouldn't have to figure out what to give the valet. Tipping was criticized as snobbish, elitist, even anti-democratic, which is fascinating. Because today, tipping is often presented as an essential part of American culture. Originally, a lot of Americans thought it was exactly the opposite. Then the story gets considerably more uncomfortable. Tipping spread more widely in the United States after the Civil War, and one important part of that history involved newly freed black workers. After emancipation, many formerly enslaved people found employment in service occupations, hotels, restaurants, railroads. One particularly famous example was the Pullman Company. Pullman employed thousands of black men as sleeping car porters. The job carried status and eventually became an important source of employment within black communities, but the pay structure relied heavily on passengers tipping, and that illustrates a much bigger development. Businesses discovered something extremely useful about tipping. If customers paid workers directly, employers could pay workers less. Think about that business model. Normally, if I employ someone, I pay them. Pretty straightforward. But tipping introduces another possibility. I employ them, you pay them, and somehow we've all agreed this is normal. That's an extraordinary achievement in outsourcing. The restaurant provides the meal, the server provides the service, and at the end, the restaurant essentially hands you part of the payroll. Here's your bill, and while you're here, could you finish calculating Susan's compensation? That connection between tipping and low-paid service work became deeply embedded in the American system, and it helps explain why tipping evolved differently here than in many other countries. But Americans didn't surrender quietly. By the late 19th and early 20th centuries, there was an actual anti-tipping movement. Books were written attacking tipping. Newspapers debated it. Organizations campaigned against it. Several states even passed laws trying to prohibit tipping. Imagine that. Not discouraging tipping, not suggesting a service charge instead. Actually making tipping illegal. Georgia, South Carolina, and other states adopted anti-tipping laws during the early 20th century. The movement had support from people who saw tipping as degrading to workers, and from people who simply hated being expected to pay extra. Some objections sound remarkably modern. Why isn't the advertised price the actual price? Why should customers have to determine employees' wages? Why should workers have to depend on the generosity of strangers? We've apparently been arguing about the same dinner bill for more than a hundred years. And despite the anti-tipping movement, tipping won. The laws largely disappeared. Restaurants kept using it, customers became accustomed to it. Workers came to depend on it. And once again, we encounter one of this show's recurring themes. A system doesn't have to be perfectly designed. It just has to become normal. QERTY would understand. Eventually, tipping became more than a social custom. It became part of the wage system. Federal law has long distinguished between tipped and non-tipped workers. In 1966, amendments to the Fair Labor Standards Act formally created a federal tip credit. The basic idea is this. An employer can count a certain amount of an employee's tips toward the employer's minimum wage obligation. Under current federal rules, the general minimum wage is $7.25 an hour. For qualifying tipped employees, the federal minimum cash wage can be as low as $2.13 an hour. Now important qualifications, that doesn't mean the worker is legally supposed to earn only $2.13. If wages plus tips don't reach the applicable minimum wage, the employer is required to make up the difference. And many states have their own, more generous rules. Some don't allow a tip credit at all. But the federal two dollars and thirteen cents figure is still striking, especially because it has remained at that level since 1991. 1991. For context, in 1991, the World Wide Web had barely begun. The Soviet Union still existed for most of the year. And a mobile phone looked like something you'd use to call in an airstrike. Yet that $2.13 federal cash wage is still with us. Which helps explain something important. In many American restaurants, your tip isn't simply a little bonus for excellent service. It can be a significant part of the server's expected income, and that makes the social rules around tipping much more complicated. For years, 15% was widely considered a normal restaurant tip. Somewhere along the way, 15% became 18%. Then 20. And now you occasionally encounter a screen where 20 appears to be the opening bid. The fascinating thing is that there was no national tipping committee. No government agency announced. Effective Monday, everyone please increase gratuities by three percentage points. Social norms just moved. By the late 20th century, 15% was a commonly cited restaurant standard. Then 18 and 20% became increasingly common recommendations. And this exposes something strange about tipping. It's technically voluntary, but socially regulated. Nobody arrests you for leaving 10%. There isn't a tipping police. Although if there were, I imagine they'd arrive carrying one of those little payment tablets. But there are expectations. And we learn them socially. Parents, friends, coworkers, travel guides, etiquette experts, and occasionally the expression on the server's face, which creates an unusual economic transaction. The price on the menu isn't really the price that you order a $20 meal. Then perhaps there's sales tax, and then perhaps 20% tip, so your $20 meal was never actually $20. We just enjoy making you discover the final price gradually. It's like a financial advent calendar. Travel outside the United States and tipping can become extremely confusing. In some countries a modest tip is appreciated. In others, service is already included. In some places rounding up is normal. In others, American style tipping simply isn't expected. Which produces one of my favorite forms of travel anxiety. The bill arrives. Everyone at the table immediately becomes an international labor economist. Do we tip here? I don't think so. Are you sure? I read something. Where? I don't remember. Then someone secretly googles it under the table. And eventually the American leaves 20% anyway, just in case. The important difference is that many countries don't structure restaurant wages around customer gratuities to the same extent as the United States. The price of labor is more directly incorporated into the price of the meal? In America we've historically separated part of it out, which is why simply saying, why don't we just stop tipping? It isn't quite as easy as it sounds that you'd have to change prices. Wages, restaurant economics, customer expectations, employee expectations, tax treatment, and decades of habit. Again, quotey. Apparently episode three is going to haunt us. And then technology changed tipping. For most of modern history, tipping required a deliberate action. You calculated it, wrote it on the receipt, or left cash. Then digital payment systems arrived. And somebody discovered something incredibly powerful. The preset button. 18%, 20%, 25%. The screen doesn't just ask whether you'd like to tip. It suggests what the answer should be. This is behavioral psychology sitting next to the cash register. The buttons establish an anchor if the choices are 20. 25, 30, then suddenly 20 feels conservative. And then there's the physical design, the employee rotates the screen toward you. You're face-to-face, there's a line behind you. You have approximately three seconds to make a financial and moral decision. This is not an environment designed for thoughtful reflection. It's designed to make you tap something and move. And tipping prompts began appearing in places where customers hadn't traditionally encountered them. Counter-service, takeout, retail-style transactions, which led to a new term, tipflation, and perhaps an even better one. Tip creep. The gradual expansion of where and how much we're expected to tip. And people have noticed. In a large Pew Research Center survey, about seven in ten Americans said tipping was expected in more places than it had been five years earlier. But here's the pot I find even more interesting. Only about one third said it was very or extremely easy to know when to tip. And roughly the same proportion said it was easy to know how much. Which means we've built an enormous social custom that most of us aren't entirely sure how to use. Sit-down restaurant? Easy? Most people understand that one. Bartender, pretty established. Haircut, usually. Coffee, maybe. Takeout. Depends who you ask. Someone hands you a muffin. We are now entering disputed territory. And this is why the tablet interaction feels so uncomfortable. You're not merely deciding how generous to be. You're trying to figure out whether a social obligation even exists. The machine knows exactly what it wants. You less so. And of course the machine never feels awkward, and it will happily ask for 30%. It has no shame, it's a rectangle. We're often told tipping rewards good service. Better service, a better tip. Simple. And service quality absolutely matters to customers. Surveys consistently show it is one of the biggest factors people say they consider when deciding how much to leave. But tipping behavior is more complicated than a pure performance bonus. People tip because it's customary. Because they don't want to look cheap. Because they know the worker depends on it. Because they're regular customers. Because they are on a date. Because other people are watching. Because calculating 18% requires mathematics, and 20% is easier. There are also long-standing debates about whether tipping produces fair or predictable compensation. Two customers can receive essentially identical service and leave completely different amounts. So we've created a compensation system partly based on performance, partly based on generosity, partly based on social convention, and partly based on whether Kevin at Table 6 has decided he's angry because the kitchen overcooked his steak. From the worker's perspective, that's quite a lot of economic power to give Kevin. Why don't restaurants just get rid of it? Some restaurants have tried. Higher menu prices, higher wages, no tipping, or automatic service charges. Conceptually, very simple. Instead of a $25 meal plus tip, charge enough to cover the true cost of the meal and labour. Done. Except customers don't always behave the way economists would like. Put two restaurants next to each other. Restaurant A, steak $30, tip expected. Restaurant B, steak $36, no tip. The final cost may be almost identical. But when customers look at the menus, restaurant A appears cheaper. Our brains are extremely cooperative like that. Some workers also prefer tipping because they can earn considerably more during busy shifts than they might under a fixed wage. So removing tipping can upset customers, restaurants, and employees. Not necessarily the same ones, and not necessarily for the same reasons. Which is why attempts to eliminate tipping often turn out to be much harder than simply changing what's printed on the receipt. The system has been around long enough that everyone has adapted to it. So why do we tip originally? Because we copied a European custom. Then because it became embedded in American service industries. Employers built business models around it. Workers built income expectations around it. Customers learned the rules, government wage laws formally recognized it. And eventually, we forgot that there had ever been another possibility. Today, tipping performs several jobs at once. It rewards service, sometimes it supplements wages, definitely. It communicates appreciation. Usually, it creates social anxiety. Frequently. And increasingly, it gives payment terminals something to ask you about. But here's the interesting part. Tipping only works because we collectively agree to participate. There's nothing physically forcing us to add 20%. It's a social convention. An incredibly powerful one. Which is why that little screen at the coffee shop can make a perfectly confident adult suddenly panic. 18? 20? 25? No tip. The employee is right there. There's a line behind you. Your coffee is getting cold. Choose wisely. I'm Steve, and apparently there's a reason for almost everything. Even if it isn't a particularly good one.