Fairfax columnist John Birmingham’s column raises some interesting issues about the practice of tipping for provision of goods and services, especially the aggressive way tipping is pursued in the US where restaurant tips of up to 20% of the bill appear to be the norm.  In Australia tipping is nowhere near as ubiquitous, and anyone who tips much more than 10% of the bill in a restaurant is a grandstanding wanker.

Birmingham observes:

Here in Oz, despite the best efforts of some in the hospitality industry, we remain feckless and lackadaisical tipsters. Is it because we’re all just tight bastards with a dollar, or because we assume people are properly paid here?

Are they?

I gotta confess I wouldn’t have a clue.

Clearly research isn’t Birmingham’s specialty. It took me only a couple of minutes Googling to find the answer. The minimum wage in Australia is currently $15 per hour, and our dollar and cost of living are roughly equivalent to the US.  According to Wikipedia anyway, the US situation is very different:

As of July 24, 2009, the federal minimum wage in the United States is $7.25 per hour. Some states and municipalities have set minimum wages higher than the federal level (see List of U.S. minimum wages), with the highest state minimum wage being $8.67 in Washington. Some U.S. territories (such as American Samoa) are exempt. Some types of labor are also exempt, and tipped labor must be paid a minimum of $2.13 per hour, as long as the hourly wage plus tipped income result in a minimum of $7.25 per hour.

You can see why American service industry employees are so aggressively insistent on coercing customers to tip.  They’d starve to death if they didn’t.

Given this effective legal compulsion underpinning tipping in the US, it occurs to me that it bears most of the attributes of a consumption tax on goods and services, and a very heavy one at that, with the proceeds instantly distributed to the low-paid by market forces. ¹1. KP: In the Blank Tapes Case in 1993, the High Court held the Keating government’s proposed royalty on blank cassette tapes to be a tax, even though it was collected by tape retailers and sent straight to copyright collection societies for distribution to copyright holders.  That is, the revenue was not collected by government nor did it ever pass through government coffers (which is part of the reason why the Court found the tax was unconstitutional).  US-style tipping is more efficient, in that the intended recipients collect the “tax” for themselves. [↩]   Of course there’s no legal compulsion to tip so it isn’t formally a tax on the classic Australian legal definition.  However, anyone who has forgotten to tip in the US would know exactly how ‘voluntary’ the practice actually is.

If one regards tipping as taxation, I strongly suspect that the ostensibly low US total tax take wouldn’t look anywhere near as impressive by comparison with the supposedly high-taxing socialist Europeans.  I wonder if any economist has crunched the numbers based on some reasonable estimate of the total value of tips in the US compared with Europe or Australia?  Of course, to be fair you’d also need to measure the extent to which tipping operates as an income-redistribution mechanism.  Presumably that adjustment would also show US income inequality to be not quite as radically different from the Europeans as it seems (unless Gini and similar measures already adjust for this, which I’m hoping someone might be able to tell me).