After having a brief discussion with some friends about my views on tipping I have come to give the idea of tipping some more thought. The gist of the discussion led me to realize that I had been looking at tipping from a somewhat wrong point of view and as such want to just make a few more comments on the matter and share a few random tidbits I ran across while looking into taxi cabs in NYC.
So why the change of heart on tipping (if you can really call it a change of heart)? When I wrote my first post on tipping, I was completely focused on the idea of tipping as something “extra” beyond the basic salary of the individual. I viewed tipping as a failure in that it was diluting good service (I will come back to this later) and basically making tipping become the “norm” or “expected” thing to get any service at all. I felt that I should be able to pay for a service and get that service performed (to the ability of the person) and pay for the service given a fixed and known cost. What I failed to realize was that tipping isn’t about the server getting money beyond what they should be making but that it is actually a way for the consumer to rate the server in a dynamic setting. Not giving a tip is the equivalent of a bad performance review (sort of like a negative tip if you will); and by tipping the “social norm” you are in effect paying the market price for the good. So a tip above the social norm is one that commends good service. By tying a portion of the salary to tips, the server and consumer can create a tighter feedback loop and ideally improve service faster for everyone. While there is the possibility of complaining to the cab company about poor service (or police if something illegal is happening) these type of things take time and are not always as clear to the driver who may benefit from more direct feedback.
However there was one thing that didn’t quite sit well with me and that was how the “social norm” number comes to be determined or even what it means. I could believe the argument about lower tip equating to bad performance, but how much tip equals “standard” performance (if there really is such a thing). I felt strongly that even without a tip the drivers should be doing their jobs to their ability and that a tip should not warrant normal service. Unfortunately, it was pointed out to me that if all drivers knew they had fixed income and no tips, then there would be less incentive to perform better or give good rides. I will not tackle the social implications of this or my thoughts on it since I already conceded that I liked the idea of a tip being like a small performance evaluation; I just needed to know what that should be.
It is common knowledge that waiters/waitresses do not make minimum wage because tips are expected to bring their salary to the right level (again… how you are supposed to know how much to tip to make that happen is unclear); was the same true for taxi drivers? I figured that given the higher skill, longer hours, and more exhausting working conditions that taxi drivers would be making at least minimum living wage without tips. I found a website that listed the minimum living wage in NYC at $10 with benefits and $11.50 without [1]. Another amazing source (Taxicab Fact book), which I highly recommend browsing, listed that the average hours worked on a shift was 10 and that a full time driver (only about 40% of all licensed drivers) reported working 5 of the previous days [2]. Lets say that a full time driver works 5 days a week for a 10 hours a day. Given the requirement that they should at least make living wage that would mean $11.50 * 10 * 5 * 52 = $29,900. For living wage a full time driver should be making right under 30k a year. Clearly driving a car (especially well in NYC) requires some skill (we are not going to debate how much) so it would make sense that such a job would pay more than minimum wage, does it? Indeed it does! The average NYC cab driver salary is $49,532 [3] just under 50k. So clearly on average cab drivers are making more than the living wage. But, the interesting thing I found about this number and other wage estimates for cab drivers is that they take into account a 15% tip for fares. That’s right, built into the expected salary is a 15% tip. This means that without tips, drivers make slightly over 43k a year. This 43k comes to about $16.50 per hour given the hours I calculated before. Compare that with a rough estimate (google) for MTA bus drivers making about $26~$29 per hour. To me it seems reasonable that cab drivers make less, but not much less. Indeed at 50k a year (after putting the 15% tip back) they make closer to $20 per hour.
Now there isn’t a hard conclusion I am drawing from this; or saying that drivers make too much or too little. I was just interested in getting some rough numbers for comparison and finding how the “social norm” tip rate figured into the calculations. This just means that to calculate the real taxi rate you just need to add 15% to the posted rate. Ideally the “social norm” rate doesn’t change (as it seems to for restaurant servers) and thus allows the taxi companies to better price around such a rate. Why 15% was chosen versus 10% or some other arbitrary number I couldn’t say (at least not with way way more information). Given that NYC trips are pretty short and come in at under $10 [2] it would not be a hard leap to think that a smaller tip would just not carry the same weight.
Overall, I found the various articles interesting reading. The taxicab fact book [2] and a more dated (1995) overview [4] from the same company were by far the most informative. The cover such things as accident rates and how fares have changed over time. In the end, I feel comfortable settling on paying the “social norm” tip given that it figures in the income rate and is documented at a known 15%. Given that it stays constant at this percent, it is perfectly reasonable to treat it like a performance bonus rather than a specific tip.
[1] http://www.livingwagenyc.org/pagedetail.php?id=3
[2] http://www.schallerconsult.com/taxi/taxifb.pdf
[3] http://411newyork.org/guide/2008/03/30/new-york-taxi-cab-driver-salary/
2 Comments
Why 15% was chosen versus 10% or some other arbitrary number?
It is a starting point as the range is 10% to 20% with 10 for poor, 15 for good and 20 for beyond.
A driver who help with the bags, drives at good speeds and help with a car seat install would more likely to get between 15% and 20%.
A driver who speeds, yells out the window, breaks hard and doesn’t even help with the luggage would most like get stiffed with a smaller tip.
That still doesn’t quite answer why 15% is considered “good”. I realize the current system trends towards 15% being good, but why couldn’t the range have been 0%, 5% and 10% for (poor, good, beyond). Or even 5%, 10%, 15%? Was it society that settled on 15% being good? or some other guiding hand?
Post a Comment