The Daily - Why Tipping Is Everywhere

Episode Date: August 29, 2024

Tipping, once contained to certain corners of the economy, has exploded, creating confusion and angst. Now, it is even becoming an issue in the U.S. presidential campaign.Ben Casselman, who covers the U.S. economy for The New York Times, cracks open the mystery of this new era of tipping.Guest: Ben Casselman, a reporter covering the U.S. economy for The New York Times.Background reading: How to deal with the many requests for tips.Former President Donald J. Trump called Vice President Kamala Harris a “copycat” over her “no tax on tips” plan.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

Hello. Excuse me. Hi. My name is Sabrina. This is Clara. We're journalists. Can we ask you a question? You just did. Another one. What is your view of tipping? I think it's become excessive. Whatever they do, they got that jar and they want you to put a tip in there. You have an iPad and it's like, alright, how much you want a tip? And it's like, you bought a five dollar coffee, it's like, alright, well tip three dollars. There's a lot of pressure. You feel like you have to tip and I feel like people are watching you at that moment. Yeah, yeah, I feel a lot more pressure to get more, you know, wages haven't kept up, so I feel like I should be tipping more. And, you know, it's annoying because my wages haven't gone up either,

so it's annoying. The other day I just bought a loaf of bread and the tip thing came up, gave me the option of 15 or 20%. Do I really have to tip somebody to buy a loaf of bread? Like I went to the self-service machine and it was like, add a tip, and I was like, add a tip for what?

I'm the one that did the work you know what I'm saying? You're like I should be tipping myself. I actually am a tip worker. We're literally paid less wages in order for the customers to pay us. What do tips mean for you and then your work? It's how I feed my family. Tips are? Yes, 100%. Unless you work in the service industry,

you don't really understand how crucial tipping is. Tips mean a lot. They are 60, 50% of my paycheck, and my hourly is pretty low to begin with. Whatever I get at the end of the night, it goes towards dinner or... For example, I didn't have money for sanitary pads one time and then... that tip, grabbed it.

I feel like a lot of people would feel like you did nothing for me. You just put a cup on the counter and I took it. Like, why should I pay you extra for that? What do you say to someone who says that? You didn't do anything, you just put my food in a bag. If you knew what my paycheck looked every week, you would think different. Or maybe not, maybe you don't feel bad for me,

and you're like, get a different job. But like, this is a job I'm good at and a job I like, and I'd like to be able to make a living off of it. So that extra dollar or two really makes a difference. From the New York Times, I'm Sabrina Tavernisi, and this is The Daily. Tipping once contained to certain corners of the economy has exploded, creating confusion and angst, and now even becoming an issue in the presidential campaign. Today, economics reporter Ben Castleman cracks open the mystery of this new era of tipping. It's Thursday, August 29th.

So, Ben. So, Sabrina. Can I ask you a personal question? Oh boy. What is your philosophy on tipping? Oh God. Exactly. Sabrina, I think I'm a sucker.

Look, I've always tried to be a good tipper in restaurants. Feels like part of the deal. I worked as a waitress for many years. That was the only way I actually made money. If there's no tip, there's no salary. So restaurants, it's a rule. Absolutely. But now tipping is everywhere.

You see these tip screens in places you never would have tipped before, right? I mean, never mind the coffee shop. You see it at the fast food place. You see it at the fast food place. You see it at the oil change place. I've heard stories of people seeing it at the self-checkout line. Who's even getting that tip? I know.

And every time a tip screen pops up, I always tip. Oh my God, Ben, so do I. It's totally irrational. I hate it. But there's like some part of me, and I don't love this about myself, that is just convinced somebody is going to be sitting there judging me, or I'm terrified that they're going to,

and like, oh my God, if I click no tip, am I a bad person? And someone behind me in line might see that. I can't click that no tip button. I am exactly the same. Every single time I'm presented with this iPad screen thingy, the tips come up, I press max 30%. My husband, an economist, thinks this is ridiculous. He says, you're tipping 30% on a bottle of water someone just handed you.

Don't do that. That is crazy. But I keep doing it because, you know, I can, so I should. I don't know why I have guilt about it. Your husband is objectively correct, right? This is crazy. But tipping is not about objective, cold economic logic, right? It's emotional. It's cultural. There are norms around it. And right now,

we kind of have no idea what those norms are. And so we're all stuck in this panicked moment of trying to decide which button you press and whether you should be expected to tip in this circumstance. Okay. So we are both suckers. We've established that. What we need to do now is figure out this panicked moment. I want you to explain this to me, Ben. Why has tipping exploded? So I think there are three reasons. The first of these is just technology, right?

Several years ago, we started to see these tablet-based checkout systems kind of everywhere. And it's very easy to just add a tip screen on there, right? That little, like, do you want to add a tip, you know, 10, 15, 20 percent. Right. And as I had less cash and then no cash in my wallet, this was always the way I paid for things. Yeah. So, it became very easy technologically to add tipping. But then the real shift came in the pandemic, okay? You know, if you think back to that moment, many of us were lucky enough to be able to work from home

and to be relatively safe, and we felt a lot of gratitude for the people who weren't able to do that, who were bringing us food and delivering groceries. And so there was an explosion in tipping. And an explosion in tipping even in places where we didn't used to tip. So if you go and pick up takeout at a restaurant, you probably always tipped your delivery driver. But if you went to the restaurant and you picked it up, you didn't tip there. But now in the pandemic moment, they add a tip screen saying, hey, would you went to the restaurant and you picked it up, you didn't tip thick. But now in the pandemic moment, they add a tip screen saying,

hey, would you like to tip? And yeah, of course I'd like to tip. These people are risking their lives out there to make my chicken tikka masala. Right, you basically wanted to tip the UPS guy. Yes, and so we were tipping everybody. And so that kind of allowed tipping to spread into these new areas, right?

It got a beachhead in places where it didn't used to be. And maybe if the story ended there, it would have been this moment in time and then it all would have gone back to the way it always used to be. But that didn't happen because we had this intense worker shortage when things started to reopen.

And how does that fit into this? So, businesses start to reopen, they need workers, they're having a hard time finding them, workers are reluctant to come back for all sorts of reasons. And tipping became a way of attracting workers, right? Businesses were paying more, but they were also looking for other ways to get workers and saying like, well, add a tip screen, that'll boost your pay further. And if there's one coffee shop where there's a tip screen and there's another coffee shop

where there isn't, you can be pretty sure which one you're going to go work at. Completely. I mean, we were talking to workers yesterday and they were very specific about which chain stores allowed tips and which ones didn't. And they much preferred working about which chain stores allowed tips and which ones didn't and they much preferred working for the ones that allowed tips. I mean it makes sense and I asked them you know as a proportion of your earnings how much are tips? Tips are a lot. Does that mean you make less in the place that doesn't have the screen that allows it? Absolutely.

We saw workers demanding this. In fact when some Starbucks stores were unionizing one of the things they demand is we want to be able to take tips on credit card payments. Interesting, yeah. This became a source of negotiation between businesses and their workers. And the thing is once that happens, it's really hard to put the genie back in the bottle. But why? I mean, this all sprung up into our lives in the matter of a couple years, so why can't it go back to the way it was just as quickly? Well, imagine that coffee shop worker that you were talking to yesterday, who's now making,

in many cases, 20, 30, even 40 percent of their earnings in tips. The business can't just say, never mind, we're going to get rid of the tip screen. Maybe we'll put out a tip jar and people can leave a buck or two when they want to. That's a huge pay cut for that worker. So okay, they could instead say, we're going to get rid of tipping and we're going to raise your pay, you know, instead of paying you 15 bucks an hour and $5 in tips, we'll give you 20 bucks an hour. But now the business is going to have to raise prices as a result.

And you, Sabrina, the coffee drinking public, are going to say, no way, I'm not going there and paying $8 for my latte or whatever the price may be. And so for the business, they can't just get rid of the tip because they can't just cut off the pay and they can't raise prices enough to raise pay accordingly. Right, non-starter for the business. Can't work for them and the worker is certainly not going to stick around if they try to do that. So has there been some experimentation with this?

I mean, have restaurants actually tried to go tipless? Yeah. So we've seen an example of exactly this. A few years back, Danny Meyer, big New York restaurateur and a bunch of other restaurants as well tried getting rid of tipping completely. They said this system is unfair, it's unequal, we're going to raise wages for everybody, for waiters but also for cooks, we're going to raise our prices accordingly to pay for that, and customers will understand.

They'll understand that they're paying the same amount at the end of the day. It just is in the form of a direct cost instead of a cost plus a tip. And it didn't work. Why? For a bunch of reasons, but mostly because customers looked at the price on the menu

and people didn't want to pay it. I also think, look, we all complain about tipping. But customers also kind of like the tip. They kind of like looking generous. You get to show off to your date or to your father-in-law, right? And of course, you can, at least in theory, express your dissatisfaction by withholding a tip or by tipping less.

Not you and me. We apparently don't do that, but some people do, I hear. The restaurant's like, ah, suckers. Okay, great. Yeah, we don't even have to worry about that. So customers rebelled against the idea of not tipping, and most of those restaurants eventually went back to the old model. Interesting.

So we do have this love-hate relationship with taping. Yes. We hate being asked, but we like the control. And I think that that is part of why all these changes feel so difficult for so many people. Because it doesn't necessarily feel like you have the control anymore. Right. That screen in front of you with the barista watching you, with the person in line behind watching you. Oh my gosh, I'm sweating already.

You don't feel like you can press the no tip button or at least suckers like you and me don't. Exactly. The choice is gone. The choice is gone or the choice at least is sort of psychologically more taxing. Right. You feel pressured to do it. choice at least is sort of psychologically more taxing. You feel pressured to do it. Okay, so that's the customer experience.

But with this new uptick in tipping, one question I always have is, is the worker on the other side of the screen getting this tip or will the business owner pocket it? So the worker is getting the tip with some caveats. By law, the business owner or the managers, they can't take the tips. If you click a tip button or you leave a dollar in the tip jar or you tip in any way, if that ends up in the pockets of the business owner or the general manager or what have you, that is wage theft. It happens.

We certainly hear stories about it happening, but it's certainly not legal and it's certainly not the norm. Now, that doesn't mean that the worker, the person who hands you your latte is the person getting your dollar. It often gets pooled across all of the workers who are working that shift, or even all of the workers who work over an entire week. But it's going to the workers.

So people like us can rest assured that the workers are getting the full benefit of that tip that you're pushing. Yes, but, okay. So in many ways, what you are doing as the customer is you are subsidizing the wage. If you, you coffee shop worker, want to get 25 bucks an hour, you don't care whether that's $20 in pay and $5 in tip, or $25 in pay, or any breakdown of that.

25 bucks is 25 bucks. 25 bucks is 25 bucks. So when I leave a tip of a dollar, on some level that's a dollar less that that coffee shop has to pay you the barista. Right. Tips are helping the barista. Right. Tips are helping the business pay their workers. They're shifting the business,

it's shifting some of the burden for paying its workers off of its revenue onto its customers. So in other words, you and I, Ben, we are kind of helping foot the bill for these wages. Absolutely. And from the business's perspective, that's a pretty great deal. Because they basically get to charge, say, $4 for the latte.

And then for the customers who are willing to pay more, they're basically charging more. Those people throw on the tip. It's a way of the business getting the maximum dollars that it can out of the maximum number of customers that it can attract. But for workers, this system where they're increasingly reliant on customer tips, carries some real risks. We'll be right back. So tell me about these risks of our tipping system.

So look, tipping has always had a lot of problems associated with it. If you think in restaurants, there are often really big pay disparities where the servers at the front of the house who are getting tipped often make a lot more money, especially at a nice restaurant, than the cooks and dishwashers and all of the people at the back of the house. Right. You hear these stories of people going to cooking school and then basically bailing on the cooking career and becoming waitresses and waiters because it's just more money. Yeah. And then within tipped occupations, there's a lot of inequity here, right?

There have been studies that have shown that, you know, a pretty young woman gets tipped better than other people, that white people often get tipped better. There are tons of problems around sexual harassment because if your earnings are dependent on the table that you're serving liking you, then maybe you put up with things that workers shouldn't have to put up with. Right. So those are the problems that have always existed in the system.

But then as tipping spreads, the risk is, first, just more workers have to deal with this, but also that more workers become more dependent on tips for their earnings. In the short term, this has all worked out pretty well for workers, right? This has been a period where they've been in hot demand. And so their wages have been rising, and

at the same time they've gotten all these tips on top of that. And that's been really great. But it's not clear that that's true over the longer term. Over the long run, you could imagine that all of these businesses get to just raise wages more slowly, that tips sort of eat away at wages over time. And then, if we ever see customers pull back a little bit, tip less, then all of a sudden, all of these workers could really suffer. So basically, you're describing a system in which the earnings are just more vulnerable,

more dependent on the kindness of strangers. Yeah, and more at risk if those strangers become a little less kind. Yes, and this issue has become so much a part of the national conversation that it's actually entered the presidential race. Both former President Trump and Vice President Kamala Harris have announced policy plans to help service workers, and essentially they're calling for no tax on tips. Yeah, that's right.

So President Trump announced this several weeks ago as his big new no taxes on tips proposal. Kamala Harris followed up and basically endorsed that proposal again a little while later. We don't have a lot of details on how this would work, but essentially it would mean that if you earn tips, those tips are exempt at least from federal income tax. So what would that mean? Well let me tell you, economists hate this idea. Left-wing economists, right-wing economists, this is one point they can kind of all agree

on. Why do they hate it? Because they say it's unfair. It singles out this one group of workers for special treatment. You know, the person who works at McDonald's who doesn't get tipped, they don't benefit from this. The retail worker doesn't benefit from this. It's just this one group of workers who get this special

treatment where they don't have to pay taxes. Right, right. But there's also maybe an even more fundamental issue, which is that if you think you hate tipping now, if these proposals go through, you're going to see so much more tipping. Uh-oh, I'm holding onto my hat. Because it's basically a subsidy for tips. Right. As a worker, right, we said before, like, you don't care whether you make, you know,

$25 an hour or $20 plus $5 an hour in tips. Well, except that if some of that money isn't taxed, you want more of that, right? You want more tips. Basically, you want your entire salary to be a tip. Ideally, right? And so that works great for the business perspective. Great, I don't need to pay my workers. Wee!

It's all tips now. Workers happy about that, right? What that means is you're gonna see more businesses looking for ways to have their workers count as tipped. Maybe you start to see tips in places that we're not seeing them at all now. Maybe you really do start to pay tips at a retail outlet, at a gas station. —Grocery store? —At a grocery store, why not? And the issue there, beyond just it being annoying for you and me,

is that it further ingrains this system. All those problems that we were talking about in tipping now involves even more workers across the economy. And they're even more vulnerable to that possibility that you and I start tipping a little bit less. So Ben, how would you describe where we are in this tipping moment? Is this just the new normal?

I think we're still in a period of transition here. The fact that we're having this conversation on some level tells you that we're not totally in a new normal yet, right? You don't leave a restaurant and say to yourself, like, man, I can't believe I was asked to tip, but we're still all the time having this conversation about you wouldn't believe I was asked to tip. But we're still all the time having this conversation about, you wouldn't believe I got asked to tip at the self-checkout.

Right. The bakery for God's sake. So, it's still a transition. It's still happening. Over time, norms will develop. We'll figure out the places where we tip and the places where we don't and how much and all of that. But the dust hasn't quite settled yet.

It hasn't settled, but I think what we do know is that we're not going back. We're not going back to a world where we only tip in those set of circumstances where we used to. And remember, this whole transition has happened during a period of relative economic strength, when people have had money to go out and spend and to tip. The question is what happens when that's no longer true? Right. When there's a recession, people are going to be nervous about their pocketbooks and probably won't be as generous.

Whenever we get to the next recession, it will be the first one in this new era of tipping. And there's a whole new group of workers who are going to lose out when that happens, who are dependent on tips, and will suffer when customers start pulling those tips back. [♪ music playing. The Sabrina, thank you so much. And the screen is just going to ask you a couple of questions at the end here.

Ben, 30%. Yes. We'll be right back. Here's what else you should know today. On Wednesday, at least 10 Palestinians were killed when hundreds of Israeli troops launched major raids overnight in the occupied West Bank, targeting Palestinian militants after what Israel said was months of rising attacks. The operation, the largest since 2023, followed months of escalating Israeli raids in the occupied territory, where nearly 3 million Palestinians live under Israeli

military rule. And the Supreme Court maintained a temporary pause on a new plan by President Biden to wipe out tens of millions of dollars of student debt. The plan was part of the president's approach to forgiving debt after the Supreme Court rejected a more ambitious proposal last year that would have cancelled more than $400 billion in loans. The scaled-down plan was directed at certain types of borrowers, including people on disability and public service workers.

The Court's decision leaves millions of borrowers enrolled in the new plan in limbo. Today's episode was produced by Muj Zaydi, Asta Chaturvedi, Eric Krupke, and Claire Tannisketter. It was edited by Lisa Chow and Brendan Klinkenberg, contains original music by Dan Powell, Marion Lozano, and Rowan Niemesto, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsvark of Wonderly. That's it for The Daily. I'm Sabrina Tavernisi. See you tomorrow.