7/30/2019

The Online Tipping Outrage

"There are exceptions. In some industries, such as bartending, the quality of the service can vary dramatically by worker and tips help to reward that extra quality when it is difficult to observe by the firm. In these industries, however, both the workers, at least the high quality workers, and the firms want tips. If the firms themselves are removing tips that is a sign that they think that the worker has little control over quality and thus tips serve no purpose other than to more or less randomly reward workers. Since random pay is less valuable than certain pay and firms are less risk averse than workers it makes sense for the firm to take on the risk of tips and instead pay a higher base (again, with the net being in line with what similar workers earn elsewhere).


In short, a job is a package of work characteristics and benefits and it’s better to let firms and workers choose those characteristics and benefits to reach efficient solutions than it is to try to move one characteristic on the incorrect assumption that all other characteristics will then remain the same, to do so is the happy meal fallacy in another guise."