How tip credits affect consumer tipping behavior

doi:10.1016/j.ijhm.2022.103214

International Journal of Hospitality Management

Volume 103, May 2022, 103214

https://doi.org/10.1016/j.ijhm.2022.103214 Get rights and content

Highlights

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Consumers tip more in states with larger tip credits.
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The effect of tip credits on tipping is serially mediated.
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Mediators are perceived server need and altruistic tipping motives.
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Results support caution in reducing tip credits.

Abstract

In the United States, employers can count servers’ tip earnings toward the satisfaction of minimum wage requirements, so that servers are often paid a sub-minimum wage. The difference between the regular and server minimum wage is known as the tip credit and it has come under attack on the grounds that it contributes to server poverty. However, if tip credits increase consumer tipping, then reducing or eliminating tip credits may not increase servers’ incomes as much as expected. The current study finds that consumers from states with larger tip credits say they tip restaurant servers more and that this effect is serially mediated by perceptions of low server wages and altruistic tipping motives. These findings contribute to theory by supporting the role of altruistic motives in tipping and to practice by raising a cautionary, yellow flag to those contemplating reductions in the tip credit.

Introduction

Restaurant servers in the United States receive part of their compensation in the form of paid wages from their employer and part in the form of voluntary gifts of money (called “tips”) from the customers they serve. Under federal and many state minimum wage laws, employers can count some of servers’ tip earnings toward the satisfaction of minimum wage requirements, so that servers are often paid a sub-minimum wage by their employers. The maximum amount of tips that can be legally credited toward the minimum wage is called the tip credit and it varies in size across the states of the United States (from $0.00 to $7.65 per hour in 2021). These tip credits allowing employers to pay a subminimum wage to tipped employees have come under attack in recent years on the grounds that they contribute to server poverty and many progressive policy thinkers as well as Democrats in Congress are advocating their elimination (see Allegretto, 2016; Schweitzer, 2021; Sutton, 2021). However, if tip credits are reduced or eliminated, then tipped workers’ wages will go up and it is possible that higher worker wages will reduce the amounts that customers feel they must tip those workers. In that case, reducing or eliminating tip credits may not increase servers’ overall incomes as much as expected and may even decrease those incomes. The current paper adds to a small research literature examining this issue and to the larger policy debate on tip credits by reporting on a study examining the effects of state differences in tip credits on consumers’ self-reported perceptions of servers’ incomes, altruistic motives for tipping, and tipping propensities.

Section snippets

Literature review

Tipping has been studied by numerous hospitality scholars, who argue that is motivated in part by desires to help servers financially (e.g., Becker et al., 2012; Lynn, 2015). Consistent with this argument, stronger self-reported tendencies to tip as a way of financially helping servers (which are hereafter called “altruistic tipping motives”) are positively related to the likelihood and size of tips given to various service workers (Lynn, 2015). If larger tip credits increase consumers’

Sample

Eight-hundred seventy-six Amazon.com Mechanical Turk (MTurk) workers completed an online survey about tipping in exchange for a small monetary payment. However, many respondents failed to answer every question (including 62 who failed to indicate what state they reside in), so sample sizes vary across the analyses reported below.

Experimental stimuli

The respondents were shown a picture of people in a casual dining restaurant along with the following words. “It is Thursday night and you are having dinner in the

Results and discussion

Descriptive statistics for and selected correlations among the key measured variables in this study are presented in Table 1. The results of a mixed, within- and between-subjects analysis of tip credit (divided into three categories), bill size, service quality, and their interactions on tip percentages is presented in Table 2. Statistically significant interactions from this analysis are depicted in Fig. 2, Fig. 3. The results of serial mediation analyses using PROCESS Model 6 (Hayes, 2018)

Conclusions

The results of this study indicate that larger tip credits are positively associated with (i) the perception that restaurant servers make subminimum wages, (ii) the tendency to tip to help servers make a living (aka, altruistic tipping motives), and (iii) tip percentages. Furthermore, the apparent effect of tip credits on tip percentages was statistically significantly, serially mediated by perceptions of low server wages and altruistic tipping motives. From a theoretical perspective, these

Declarations of interest

none.

References (7)

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The underlying dimensions of tipping behavior: an exploration, confirmation, and predictive model
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(2012)
M. Lynn
Service gratuities and tipping: a motivational framework
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(2015)
Allegretto, S. ,2016. Two and a half decades: Still waiting for change....

There are more references available in the full text version of this article.

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¹: Michael Lynn is the Michael D. Johnson and Family Professor of Services Marketing at the Cornell Hotel School Send inquiries about the paper to Mike Lynn, School of Hotel Administration, Cornell University, Ithaca, NY, 14853, (607) 255-8271.

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