The Case for Tipping and Unrestricted Tip-pooling: Promoting Intrafirm Cooperation
Abstract: Going against the well-established tipping norm in the United States, a growing number of restaurant owners are moving to ban tipping, and instead raise prices, in their restaurants. They argue that existing law precludes them from sharing tips with “back-of-the-house” employees (like chefs and dishwashers), and thus makes it hard to compensate those employees fairly. We argue that the movement against tipping is ill-advised. Tipping is a valuable social institution that allows customers to monitor service where management cannot. The better answer is to remove legal restrictions on tip-pooling. Pooling tips among a broad swath of employees (other than ownership-level employees) is in keeping with the cooperative effort that underlies the provision of service in settings like restaurants. Managers thus can deploy tip-pooling to allow the compensation scheme to promote cooperation among workers in the joint endeavor of service provision.