Tipping in the service industry

[Angrboda]

Ultimately the question comes down to supply and demand.  There are several instances of supply and demand here.  The two most important being the supply of the service and the demand for it, and the supply of workers being willing to supply the service.  Depending upon the demand for the service, a certain rate of compensation will be established between asking for too much compensation and asking too little.  So the total amount of compensation is set by the market, regardless of whether that comes in the form of payment in toto, or payment plus a customary gratuity.  Likewise, the supply of workers who supply the service is dependent upon the compensation provided to them.  Provide less compensation to the worker and fewer will engage in that practice, causing a scarcity of supply which will lead the market to compensate by increasing the price of the service overall, thus increasing the compensation to the worker.  Whether the compensation is provided in terms of one lump sum or distributed in terms of  a lump sum plus customary tips, the levels of compensation are ultimately set by market forces independent of whether the compensation provided for the service is paid as one complete sum or as a combination of tips and a payment.  If you eliminate the tips, then the level of compensation being provided to the individual worker will have to rise in order for them to meet the need for workers to provide the service.  So the question of tips or no tips is really just a question of how the compensation from the seller is provided to the worker, it doesn't determine the actual amount of that total compensation.  The market forces do that.  So preferring one solution, lump total sum over lump sum plus tips, is simply preferring one arbitrary means of distributing the same monies over another.  There is no fundamental reason to prefer one to the other, though there may be systematic reasons, such as workers being short changed on total compensation because of the way compensation is counted.  So ultimately preferring one customary practice to the other makes no sense.  It's simply a custom.  If the custom were to change, other things would not remain static, the market would change the level of compensation provided by other means than tips to compensate.  So your friend is simply arguing an arbitrary preference for the customs of her practice.

Tipping becomes more than just a custom when the federal minimum wage laws dictate that food service workers are allowed to earn a minimum wage of $2.35 an hour and employers aren't willing to shell out the extremely ridiculous federal wage that everyone else makes of $7.25 an hour. 

Until the laws are changed here regarding how servers are paid and the amount they should receive, then I'm afraid workers will always have to rely heavily on their tips. Also what many people don't realize is that when the tip is added on the credit card, employers are required to take deductions out of those tips, vs paying tips in cash and letting the server claim the standard 10% of their tips on their tax returns. Tips via credit card hurts the employees even more because of this.

Regardless, my point is that preferring one practice to the other, whether supported by law or whatever, is simply arbitrary. If you remove the support for a practice involving tips, other practices will change to compensate because of market forces. So the argument as to which is preferable is simply a non-starter. Neither is preferable to the other, they are both simply arbitrary mechanisms for achieving the same result.