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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That’s a sharp increase from the 75% who thought tipping culture had gone too far in 2024. One potential culprit? The proliferation of tipping screens in places outside sit-down restaurants, such as coffee shops and hair salon. Three in 10 Americans say they give less when presented with tipping screens.
In recent years, companies such as Square and Toast have created touch screen technologies prompting customers at coffee shops and casual restaurants to tip upwards of 25%. Despite the interesting psychological conundrum this presents to consumers, one tech columnist argues that shoppers don’t need to succumb to the pressure.
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.
By 1868, Pullman, who operated luxury sleeping cars on the country’s growing network of railways, had started hiring formerly enslaved Black men as porters for extremely meager wages, working long hours in poor conditions. He encouraged wealthy passengers to tip them, helping institutionalize tipping in the US.
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.
Tipped employees (anyone who makes $30+ per month in tips) are not federally entitled to a traditional minimum wage. Customers determine their earnings. The National Restaurant Association believes that if restaurant owners are forced to pay above the subminimum wage for tipped workers, restaurants could be forced to close.
A 1966 amendment created the “tip credit,” which allowed restaurants to pay below minimum wage if tips compensated the difference. However, this federal tipped minimum wage has remained frozen at $2.13 per hour since 1991, whereas the regular minimum wage has increased multiple times since then.
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.
This map shows how other countries stack up to the US in terms of tipping norms, and could be helpful if you’re planning to budget for a trip abroad. It also indicates if tips are typically included in the bill in each country.
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%.
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