Also known as a gratuity, a tip is money that customers offer workers in addition to the base price of a good or service. Those small transactions add up: Americans now leave roughly $78B in restaurant and bar tips per year.
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For instance, among people who visit hair salons or barber shops, 62% of female respondents said they always tipped. Only 45% of men said the same. This article includes more takeaways and stats about how Americans tip, and who receives them.
This change has been driven by multiple factors, including point-of-sale systems from fintech companies such as Square that prompt customers for tips directly. Americans also increased tipping during the pandemic in an effort to support local businesses struggling financially due to a lack of physical foot traffic.
In so-called “equal treatment states,” where tipped workers are subject to the normal federal minimum wage or higher rather than the tipped minimum wage, the poverty rate is 11.1%.
The habit runs contrary to economic rationality: Why pay more for a good or service you have already received when it isn’t mandatory? Researchers found that people tip, in part, to avoid the psychological pain of not fitting in.
During Prohibition, restaurants lost significant revenue, given that they could no longer legally serve customers high-margin alcohol. As a result, many of these restaurants leaned more heavily on tips to ease the financial pressure of paying employees.
In 1938, the New Deal established a minimum wage for one-fifth of the labor force, with many sectors—including service workers—not covered. Today, although the subminimum wage of $2.13 an hour is enforced, a large portion of those paychecks go to taxes like Social Security and Medicare.
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