Write 150 words on what you thought about this case.

Tipping has been around since the 17^th century, when it emerged in Europe, and spread to North America in the 1800s. Since that time, the U.S. has been at the forefront for the tipping culture due to the structure of tipped workers wages. In recent years, the discussion on whether tipping should be banned from service industries has become a hot topic.

Position

We believe that tipping should not be banned as it has become an important part of the service industry. Not only does it incentivize tipped workers to perform better, but it creates a better atmosphere and can lead to a greater economic impact due to the increase in sales and service. Tipping is a way of expressing gratitude and satisfaction towards the service provided. It is a direct reflection of the quality of the service. Service sector employees often go above and beyond their duties to provide excellent service. Tipping is deeply ingrained in many cultures, and it is seen as a norm, a part of social etiquette, so banning tipping would not only disrupt the cultural norm, but it could also lead to misunderstanding and discomfort for tourists and visitors from cultures where tipping is commonplace.

In addition to the advantages of tipping, an overhaul of the Fair Labor Standards Act (FSLA) would need to take place in order for tipping to be banned and would be very challenging in todays political climate where the government cant seem to agree on anything, let alone increasing minimum wage for service workers or eliminating tipping completely.

Quality of Service

One of the biggest benefits that the current tipping culture brings is the expectation that better service will create a better tip, meaning that the quality of service should be better if the employee is financially incentivized to provide better service to the customer. Hourly wage doesn't always reflect performance, but tips can account for this. If a server or bartender makes federal or state minimum wage, then tips offer the opportunity to make 2-5 times this hourly wage (Wilder, 2022). If tips were banned or eliminated, its possible that since the employees would then make a set rate, they would care less about the quality of service, and instead try to rush customers in the attempt to get more customers through the door. (Kinicki, 2021, P162) Motivation describes the psychological process that underlines the direction, intensity and persistence of behavior or thought.

Economic Theory/Impact

We discussed how eliminating tips could result in a decrease in quality from the tipped employee. On the other hand, tipping the service industry employees results in higher incentives for servers to sell more. That means if its a slow night, selling more means selling each customer more, so up sell, push desserts, drinks, etc. (Economy, 2016). This can lead to having an increase in spending and thus, a greater economic impact for the businesses.

In addition to incentivizing tipped employees, reducing or eliminating tips would result in the business owners increasing their product costs in order for the company to pay their employees the difference in tipped wages (at least up to minimum wage). Tipping has implications for different areas in economics: since tips are a major source of income for millions of workers, it has implications for labor economics (Azar, 2007). Millions of workers in hundreds of thousands of businesses. That is a significant number of businesses that would have to increase their prices, which could negatively impact the purchasing power of the dollar in the United States.

Fair Labor Standards Act

If tipping disappears, the minimum wage for service workers would have to increase from its current $2.13/hour, which wouldnt necessarily be a bad idea, but it would be found challenging in this political landscape to get the government to pass new laws about increased minimum wage, and that would need to happen before banning tips or at least trying to make tipping obsolete. Also, eliminating tipping could result in financial hardship for the employees of service sectors unless employers increase their wages correspondingly, which is unlikely considering the already thin profit margins in these industries.

Almost every state in the U.S. adheres to the Fair Labor Standards Act (FLSA). The FLSA states that employers can use tips as a credit against the minimum wage. Essentially, this means that instead of paying tipped workers the $7.25 national minimum wage (per hour), employers may choose to pay them as low as $2.13 in cash and issue a maximum tip credit of $5.12 (Sharara, 2020). Tipping is a voluntary act and customers can adjust the amount based on the quality of service they received. This promotes a merit-based system where workers are incentivized to provide the best service possible to earn a tip.

Global Impact

Even though the United States and Canada seem to be the main countries that have a big tipping culture, there are still many countries in Europe that tend to leave tips as well albeit smaller percentages than North America. The United Kingdom, Germany, and other European countries dont have as strong of a tipping culture, so leaving a tip is completely up to the person being served. It is still common, however, to still leave a 5-10% tip unless the service is really poor, or the gratuity is already included on the bill.

The 5-10% tip might seem like a large decrease, but these countries also have a higher minimum wage for their tipped workers as well, meaning additional income in the pockets of millions of workers in Europe which can flow back into the economy through spending and can further drive economic growth. Tipping can benefit businesses because when employees strive to provide excellent service in hopes of earning a tip, it enhances the overall customer experience.

Potential Impact of Banning Tips

Banning tips would have several potential impacts on both service workers and customers. Service workers who heavily rely on tips as a significant portion of their income would face financial hardships. Many workers in the service industry such as waitstaff, rely on tips to make up for low base wages. Without tips, their overall earnings would be significantly reduced, making it difficult to make ends meet and support themselves or their families. Banning tips could lead to a decline in the quality of customer services and limit the freedom of customers to express their gratitude and satisfaction.

Conclusion

While the tipping system has its flaws and is subject to abuse, the benefits outweigh the negatives. It acts as a motivator for excellent service, supplements incomes for service sector employees and benefits businesses in the long run. Therefore, reforming the system would be more beneficial than outright banning it. Employers could be encouraged or mandated to pay their workers a living wage, with tips serving as a bonus for good service to ensure that workers are fairly compensated. This system to increase minimum wage and decrease the reliance on tips is already in place overseas, so we know it can work. Removing tips completely, though, would do more harm than good.