## 02 May 2008

### The strange mathematics of tipping

Do you tip less in a tough economy?, from Queercents.com, which is apparently a queer personal finance site.

It seems that at some restaurants, the average tip has gone down from the old 15 to 20 percent neighborhood to more like 12 percent. The author of the post comments that this is a "3 to 7 percent" cut in pay.

First, 20-12 is 8, not 7.

Second, that's all wrong! Let's say that before the US economy went all funny, servers made \$2.50 an hour in pay, and \$7.50 in tips. (\$2.50 is somewhere near the federal minimum wage for servers; \$7.50 was chosen so that the figures would add up to \$10.) Let's say that the \$7.50 was back when tips were an average of 18%. If tips average 12% now, then only two-thirds as much tip income will come in -- so \$5 an hour.

So our hypothetical server now averages \$7.50 an hour instead of \$10, a twenty-five percent cut. There's a big difference there. I would not be happy if my income were cut by "3 to 7 percent", but I wouldn't have to make huge changes in my lifestyle. But if my income were cut by 25 percent, there are quite a few things I'd have to cut back on. I suspect this is true for many people.

For my international readers who are not used to the silly system we have here in the US: restaurants typically pay their servers between \$2 and \$3 an hour, and the rest of their income comes in tips; this is as opposed to the more civilized system I understand you have in much of the rest of the world, in which tipping is reserved for extraordinary service and restaurant owners actually pay their staff a decent wage.

(Thanks to dan for pointing me to this.)

Unknown said...

Your post raises a rhetoric question I wonder about from time to time. What's the best way to make it clear whether you're talking about an absolute or relative change in a quantity that is already a percentage? How do you do this without sounding pedantic, especially to a non-technical audience? For example, how do you avoid the ambiguity of "a ten percent drop in interest rates" that could mean 12% dropped to 2% or could mean 12% dropped to 10.8%?

Isabel,

Your point is similar to one made by me in the last post of my blog. It's about an example that I found in a Colombian newspaper (http://estocasticas.blogspot.com/2008/04/la-importancia-de-las-matemticas.html)

It is in Spanish but by your name I guess you can read it... I hope so.

Michael Lugo said...

Daniel,

thanks for the link! My native language is in fact English (my father and his parents immigrated to the US from Cuba); I can read Spanish but would be hard-pressed to write or speak in it.

And we definitely have the same confusion between "logarithmic" and "exponential" in English as well.

Valentine said...

John,
Usually one says "down 10 percental units" when you mean 12% becoming 2%.

In my country tipping is getting more common, which is awful, because the prices at restaurants and hairdressers etc. are already set quite high to include the pay of servers, annd now people get mad when you don't want to spend even more on their services. I've had to change hairdresser 3 times now because they get mad!

Joseph said...

You can think of tipping as wiki-compensation.

Anonymous said...

A couple items on compensation for waitrons:
http://www.bls.gov/oco/ocos162.htm#earnings

http://www.dol.gov/wb/faq26.htm

Interestingly, if the tips come in too low (i.e., under full minimum wage), the employers are supposed to make up the difference. I did not know that before googling this.