If restaurant segments above fast food were exempt from paying the scheduled higher minimum wages because of servers' tip incomes, then fast-food restaurants would suffer a growing cost disadvantage relative to other industry segments.
(Several servers responded after consulting their smartphones, where they recorded their tips.) That median translates to slightly more than $33 an hour today, after adjusting for inflation on tip income and adding the $2 increase in the state's minimum wage since 2015.
Assuming the "median server" reports for tax purposes two-thirds of his total income, he would save $5,903 in taxes by not reporting his full tip income, making his "effective pre-tax annual income" $71,903.
The Chili's bartender assured me that the consoles had increased his average daily tip income by 20% "at least!" The Red Robin bartender, who confessed to not tracking his tips carefully, could only say that his percentage tips had risen, primarily because people who use the consoles click on "20% tip," which is at the top of the list of tip options.
Though restaurateurs and commentators stop short of saying that servers are overpaid, many of them complain that servers' tip incomes often exceed those of equally skilled and important non-tipped restaurant workers.
In fact, I doubt that tipping is cost-effective, because it increases the need for managerial vigilance against employee theft and increases the difficulty of tracking, recording, and reporting servers' tip incomes, as I explain next.
However, I come away from the data believing that biggest reason for restaurateurs to replace tipping is that it takes revenue away from them in the form of lower prices and gives it to servers in the form of excessively high tip income. The biggest reason for restaurateurs to keep tipping is that it allows them to reduce menu prices, which increases demand.
Similar experiments with no-tipping policies and restaurant industry calls for the elimination of tipping occurred in the 1980s when a series of new laws increased restaurants' responsibilities for paying taxes on tip income. (13) Moreover, the 1980s debate was just a continuation of a broader controversy over tipping that goes back to the early 1900s when the practice was imported into the United States from Europe.
Tipping abolitionists might be surprised to learn that all servers surveyed chortled at the suggested replacement of their tip incomes with a "living wage" of $15 an hour.
I posed a question to each privately, "What hourly wage would cause you to voluntarily give up your current compensation package, including the state's minimum wage and your tip income?" The responses ranged from $18 to $50 an hour.
The researchers found that servers' tip income rose only 2 percent for a 1-point increase in reported service quality on the 5-point scale--hardly a reliable finding.
All servers strongly agreed that overall service quality would drop precipitously if their tip income were replaced with a fixed hourly wage, especially for "loud," "obnoxious," and "arrogant" customers, as well as customers with unruly and messy children.