Income inequality is pervasive, hard to solve and perhaps the most important challenge facing the United States today. President Obama has proposed several legislative approaches to reducing inequality, including higher taxes on the rich and expanding access to community colleges, but these are unlikely to translate into better take-home pay for the current working poor (or, in some cases, unlikely to become law). Several Democrats have proposed hikes to the current federal minimum wage, but, like Obama’s proposals, these efforts have been blocked in a Republican-dominated Congress.
We propose a different approach, which is to tip. Liberally. We’re not the first to suggest this: Colleen Shaddox argued here that big tippers may not be heroes, but small tippers are certainly jerks. Our reasoning is different: In a world where little is being done to reduce income inequality, handing over an extra $5 bill to the taxi driver, waitperson, clerk or hotel maid is the most direct way to narrow the gap between rich and poor. There are no perverse disincentives arising from government-funded income-transfer programs. No administrative overhead from silly fundraising efforts. Each dollar you give goes directly to helping someone who is almost surely hovering in the bottom quarter of the income distribution. She’s likely to be a parent as well. And as one of us has shown in published research, empowering a breadwinner is one of the best ways to encourage stable family structure, with dividends for the next generation.
For those who can afford it, it’s not hard to tip more; we’re only held back by social conventions suggesting that a 20 percent tip is plenty generous. While this convention is flouted in a few high-end New York coffee shops, where tips of $2 or $3 for a $4 drink are increasingly common, these are exceptions rather than the norm. But why shouldn’t tipping depend not just on service, but on the affluence of the person served as well? The successful hedge fund manager can share some of her good fortune with the taxi driver who has driven her the 20 minutes from the airport. The Ivy League professor can share some of his with the barista who makes his coffee.
Not everyone is a fan of tipping. The Marriott Corporation was criticized for suggesting that its customers should tip their housekeepers more. Why, some critics asked, should customers feel guilty about not tipping, when the real problem is that Marriott pays its employees too little? And while baristas, hair stylists or bellhops could benefit significantly, tipping does less for workers whose customers can’t afford to tip, and nothing for those workers who don’t interact with the public — those who work in the stock room or the janitorial staff, or people we don’t customarily tip now, like the cashier at McDonalds or Wal-Mart.
So we acknowledge that tipping will never by itself solve the much larger problem of income inequality. And we worry that service workers’ income will increasingly become hostage to their customer’s mood, or whether they happened to like the food – a concern shared by some restaurants that now charge a flat 20 percent of the bill to cover service. Still, the fact that you can’t help every deserving worker shouldn’t keep you from doing something for the waitress worrying about bus fare to get home.
Would more generous tipping really have an impact on the incomes of the working poor? Yes: If everyone in the top 20 percent of the income distribution (those with family income over $121,000) upped their tips by an average of only 65 cents per day, an extra $11.6 billion annually would end up in the pockets of the working poor and middle-class. According to one recent study, the major minimum wage hike in 1996 generated just $11.4 billion (in 2013 dollars) annually in take-home pay, and even that was attenuated by the higher prices charged by companies relying heavily on minimum-wage workers.
We should recognize that tipping, for all its faults, is a straightforward way of ensuring that our dollars do something beyond rewarding good service. It’s not a substitute for charitable contributions, which typically throw a safety net to people who have already slipped off the financial cliff. But generous tips can play an important role in addressing the major concern of income inequality, which is not so much the rich getting richer, but the rising ranks of working poor struggling to raise children on lousy wages at unstable jobs — a problem that is worsening over time. For those who can afford it, more generous tipping is something that both political parties should embrace — a private, efficient approach to encouraging work and family stability for all Americans.