The tipping point: A mathematical model for the profit-driven abandonment of restaurant tipping

Abstract

The custom of voluntarily tipping for services rendered has gone in and out of fashion in America since its introduction in the 19th century. Restaurant owners that ban tipping in their establishments often claim that social justice drives their decisions, but we show that rational profit-maximization may also justify the decisions. Here, we propose a conceptual model of restaurant competition for staff and customers, and we show that there exists a critical conventional tip rate at which restaurant owners should eliminate tipping to maximize profits. Because the conventional tip rate has been increasing steadily for the last several decades, our model suggests that restaurant owners may abandon tipping en masse when that critical tip rate is reached.

Restaurant tipping in Europe: a comparative assessment

“…Importantly, in all European countries, workers will be entitled to paid holidays as well. In comparison, a service worker in the USA may rely on a minimum federal minimum wage as low as US$2.13 (€1.95) (Clifton et al, 2018), i.e. less than a third of the lowest pay in this sample of countries.…”