Businesses seek tips to avoid wage hikes during a recession.

Businesses seek tips to avoid wage hikes during a recession.

How Tipping Became the Norm: A Look at the Changing Landscape Post-2020


If you’ve ever felt like tipping has become more prevalent, you’re not alone. In fact, tipping has become such a norm that it has even become a meme. From someone staring you in the eyes as they turn around a screen for you to choose a tip, to tipping screens popping up everywhere, including self-checkouts, it seems like tipping is inescapable in the US.

A May Bankrate survey revealed that 41% of respondents believe that businesses should pay employees better rather than rely so much on tips. This sentiment is fueled by the belief that tipping has gotten “out of control.” But how did we get here? According to a recent Wall Street Journal article, the tipping culture we see today, which extends beyond just restaurant servers and delivery drivers, was formed during the pandemic.

In 2020, as in-person industries suddenly turned service workers into essential workers, people began tipping more generously and on things they may not have tipped on previously. This shift in tipping norms led businesses to depend on that flow of tips. Scheherezade Rehman, an economist and professor of international finance at George Washington University, explained that businesses now rely on tips to make up for their hesitation to raise wages due to concerns about a potential recession.

Jonathan Morduch, a professor of public policy and economics at New York University, highlighted that businesses want to avoid committing to higher wages as they prepare for a potential economic downturn. By tying pay to tips, businesses can maintain flexibility and avoid the risks associated with increasing costs.

The rise of tipping everywhere can also be attributed to workers becoming more expensive. Wages have been on the rise, and with the effects of inflation and a surplus of job openings, businesses are finding it costly to compete for new employees. As Laurence Kotlikoff, an economics professor at Boston University, pointed out, businesses are hoping that customers will voluntarily pay more to help offset these increased costs.

Currently, some service workers are subject to what is known as the tipped minimum wage, which is significantly lower than the federal minimum wage. With a tipped minimum wage of $2.13, workers’ paychecks are primarily driven by the tips they receive, rather than an hourly rate. This allows businesses to rely on customers’ generosity, especially when there is no pressure to raise the tipped minimum.

However, making workers’ pay essentially contingent on customers’ generosity is not a sustainable long-term strategy. Customers are growing frustrated with offloaded costs, and even in a slightly cooling labor market, there are plenty of jobs available that offer better pay. The Federal Reserve also dismisses businesses’ fears of a recession, further weakening the credibility of this approach.

So, if you find yourself tired of tipping or relying on tips, you are not alone. The changing landscape post-2020 has reshaped the dynamics between businesses, employees, and customers. As the economy continues to evolve, it remains to be seen whether tipping will remain as prevalent as it is today.