‘Tipflation’ sparks debate over rising tipping expectations

[0:09] It's time now for tonight's social story, and that's where we post three stories on our social media, and you decide what we cover. [0:16] Today's choice is spring cleaning, no phone restaurants, and the rise of tipflation. [0:22] I'm a fan of all of these. [0:23] With 41% of the vote, you chose tipflation. [0:28] Joining me now with more is Wendy De La Rosa, assistant professor of marketing at the Wharton School, behavioral science expert, and co-creator and host of TED's Your Money and Your Mind. [0:38] Wendy, thanks so much for joining us. [0:39] So take us through the history of tipping in this country and what has changed. [0:46] That's such a great question, Stephanie. [0:48] Thanks for asking. [0:49] Many Americans will be surprised to learn that tipping is not an American construct. [0:53] In fact, it was imported over from Europe, and there was such a backlash to tipping culture back before the 1900s, where people felt like it was insulting to act in such a servo way, so much so that six states actually banned [1:08] the act of tipping throughout the United States. [1:11] It wasn't until after the Civil War, where certain industries, including the service industry and the railroad industry, were looking for ways to not pay freed enslaved personnel. [1:24] And so that's when we started to see the increase in tipping in the United States. [1:29] But to be clear, we never had a minimum tipping wage from the Civil War until 1966, where Congress established that employers could shift their labor costs to consumers by setting a subminimum federal wage that's lower than the U.S. federal minimum wage. [1:51] Very interesting. And we are in a tough economy, and I think a lot of folks are noticing when they go out to a fast food restaurant or a regular restaurant, they notice that there's always that option for tipping. [2:03] I will share that I ordered a pair of shoes for my kids, and at checkout, there was a tip fee. [2:10] This was online. There's a tip fee. [2:13] So what's going on here? Are people tipping too much right now or too little? [2:18] Well, I think what people are feeling is tipflation as the sort of name of the story, and it comes in one of two ways. [2:27] One, we're seeing a proliferation of places that are asking for tips. [2:31] So that story, it's not surprising, sadly. [2:34] We hear from consumers all the time, and when they're asked to tip automatic services, where they're asked to tip when they themselves did the service, when they picked up their own food, [2:46] they're asked to tip even at their doctor's office. And on top of that, not only have we seen a proliferation of places asking for tip in more places, [2:56] we're also seeing a shift in the default percentages that people are asked to tip. [3:02] So before, if you look at these screens, it used to be 10, 15, and 20%. [3:07] And now what we're seeing is that the defaults have shifted upwards. [3:11] So now it's 15, 20, to 25. In some places, it's even 20, 25, and 30. [3:16] And so when you think about the impact on a consumer, you're now paying more for services if you tip everywhere. [3:23] And now the percentage of what you're tipping is also increasing because the option set in that iPad screen is also changing. [3:33] And let's talk about servers, right? Is it unreasonable to expect servers to not have to rely on tips from customers? [3:40] We often hear that they are relying on those tips when they are working at restaurants. What are your thoughts? [3:46] Yeah, this is such a complicated issue, but I will say if we care about the financial well-being of workers, the tip system is not the way to optimize that. [3:58] So right now, the federal minimum wage for tip workers, the sub-minimum wage, has been $2.13 since 1991. [4:07] That means that for a service worker to earn $7.25, which is our national minimum wage, they are relying on the consumer and not the employer. [4:17] So who is the person that's benefiting from the system? It's the employer. [4:21] They're shifting away their labor costs from them to the consumer. [4:26] Now, what do we know based on our research by Rohan Garg and Ekaterina Gontarova and myself as part of this lab? [4:32] We know that when people have unpredictable income streams, volatile income streams, which is essentially what happens when you're relying on tips, [4:40] people feel much more financially stressed, they have lower financial well-being. [4:44] It fundamentally changes the way in which people feel about their financial situation and increases the stress levels. [4:52] Some other work by Abby Sussman has shown that the likelihood of budgeting decreases because it becomes harder to even to try to budget your money over the course of the month. [5:02] And so, again, when we're thinking about what is the best way to help the worker, a tip system doesn't seem to be it. [5:10] And, in fact, there are seven states that have sort of done away with sub-minimum wage to try to help these workers and give them a livable wage, [5:23] which is, I think, what consumers, employers, and most people in society want. [5:29] Wendy De La Rosa, this is a big talker. [5:32] Thank you so much for shedding more light on tipflation. [5:35] Really appreciate your insights. [5:37] Thank you. [5:38] And for those of you watching, take a moment, scan the QR code on your screen. [5:42] Each day we post the social story on the ABC News Live Instagram page, [5:46] and your vote could help pick what we cover tomorrow.