Tips Better Than 'Increased Living Wage,' Study Says

A recent study shows that getting rid of tipping in the restaurant industry in favor of a "living wage" of $15 may actually hurt the industry.

Richard B. McKenzie, senior fellow at the National Center for Policy Analysis and Gerken Professor of Economics and Management Emeritus at the UC Irvine Paul Merage School of Business, determined that the tipping model benefits everyone in the restaurant industry, from the servers to the diners, and even the owners of the restaurants themselves.

Through an informal study at causal restaurants, McKenzie found that servers earn much higher salaries than "abolitionists," those who favor a no-tipping model, tend to realize.

"However, my research shows that if tipping were to be replaced by a fixed hourly rate of pay, service would suffer significantly, and so might the earnings of the servers in question," McKenzie stated, as noted by Science Daily. "In addition, the wage that the restaurant servers indicated would be acceptable was in the range of $30 an hour, not $15 which is the wage rate states are considering."

Furthermore, he observed restaurants that decided to raise hourly rates and eliminate tipping. The dining establishments in question lost 70 percent of their servers, who experienced a salary drop from $35 - $45 per hour, to $20 - $35 per hour.

"Policy makers must understand, tipping is a pay mechanism that incentivizes servers to use their localized information for their own and their company's benefit,” McKenzie explained. “Tipping aligns the incentives of servers and managers and owners for a common objective -- to make people's restaurant experiences a win for everyone. Through tipping, servers effectively become commissioned salespeople, enticed to add to customers' experience and company sales. It's a win-win situation."