Rethinking Tipping: Is Tipping Reaching Its Breaking Point?
As tipping expands into more contexts, from quick service counters to takeout, customers are feeling the strain—a phenomenon known as tipping fatigue. This growing pressure is reshaping the hospitality landscape. Guests labeled mandatory service charges as “socialist.” The data shows that 70% of consumers believe tipping has gotten out of hand. Despite these challenges, tipping remains central to hospitality’s financial framework, upheld by deep-seated habits and social norms. But as customer fatigue grows, the industry faces a critical question: will it stick with the status quo, or innovate to address these mounting tensions?
In this issue, we bring together three distinct perspectives to explore the future of tipping: TJ Callahan, a seasoned restaurateur with an MBA in finance who has implemented and tested alternative tipping models; Dr. Michael Lynn, Professor of Services Marketing at Cornell University and a leading expert on the psychology of tipping; and Dr. Laurence Kotlikoff, Professor of Economics at Boston University and a globally recognized authority on fiscal policy. Together, their insights offer a comprehensive view—spanning real-world practice, psychological drivers, and economic implications—on how tipping is shaping, and being shaped by, the hospitality industry.
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TJ Callahan is the co-founder and owner of Farm Bar, as well as the farmer behind Brown Dog Farm in Wisconsin. A lifelong restaurant professional, he has held roles from fry cook to executive, including GM of a $7M TGI Friday’s and F&B Director at a ski resort, and has restructured $200M restaurant companies. At Farm Bar, he leads finance, strategy, and operations. TJ holds a B.S. in Hospitality from UMass and an MBA from the University of Chicago Booth School of Business. He serves as treasurer of the Restaurant Association and lives in Chicago with his wife and dog.
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Michael Lynn is the Michael D. Johnson and Family Professor of Services Marketing at Cornell University’s School of Hotel Administration. A former server turned scholar, he is a leading expert on tipping, with over 80 research publications on the subject. His work has been featured in major media outlets including The New York Times, The Economist, and NPR. Mike holds a Ph.D. in Social Psychology from Ohio State University and has taught marketing in business and hospitality schools since 1988.
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Laurence Kotlikoff is a Professor of Economics at Boston University and President of Economic Security Planning, Inc. A New York Times best-selling author, he is recognized as one of The Economist’s 25 most influential economists. His research spans personal finance, Social Security, taxation, and inequality, with 21 books and hundreds of publications to his name. A former Senior Economist with the President’s Council of Economic Advisers, he is also a Fellow of the American Academy of Arts and Sciences and the Econometric Society. Kotlikoff holds a Ph.D. from Harvard and a B.A. from the University of Pennsylvania.
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1. Tipping as the Financial Backbone of Hospitality
All three experts agree on one fundamental point: tipping is central to the U.S. hospitality industry. For better or worse, it’s woven into how workers are compensated and how businesses maintain profitability.
- TJ Callahan, an experienced restaurateur, emphasized how tipping is ingrained in the financial structure of American restaurants:
“75% of [servers’] take-home compensation is gratuities and tips.”
Callahan’s restaurants rely heavily on tipping to supplement staff wages, a model many U.S. restaurants follow.
- Dr. Michael Lynn, a professor at Cornell and expert in the psychology of tipping, also highlighted the normative nature of tipping, driven less by service quality and more by societal expectations:
“70% of the variance in tipping can be explained by bill size…social expectations are the biggest predictor of tipping.”
Tipping is often automatic, and customers follow these unwritten rules regardless of service.
- Dr. Laurence Kotlikoff, Professor of economics at BU, acknowledged tipping’s prevalence, but warns against shortsighted reforms that aim to eliminate taxes on tips.
“Eliminating FICA taxes on tips might give workers a higher paycheck now, but it would hurt them in the long run by lowering their Social Security benefits.”
Despite these different focuses, all three agree that tipping remains a financial necessity, but they diverge on its long-term sustainability and fairness.
2. The Struggle to Reform Tipping Systems
Where the experts truly diverge is in how to reform the tipping system—or if it even needs reform. Both Callahan and Kotlikoff have practical and financial concerns, while Lynn focuses on the psychology of customer behavior.
- TJ Callahan tried to move away from tipping by implementing a service charge model in one of his restaurants, but customers revolted:
“Guests hated the service charge…we got reviews that accused us of being a ‘socialist restaurant.’”
His failed experiment highlighted how deeply ingrained tipping is in customer behavior, even when alternatives might offer fairer compensation models.
- Dr. Michael Lynn, however, explains why customers are so resistant to service charges: tipping is often more about social approval than rewarding service.
“Service quality only explains 4% of the difference in tips…most tipping is about buying social approval.”
For customers, tipping gives them control and a sense of contributing to the service experience, even if the system isn’t always rational.
- Dr. Laurence Kotlikoff views the issue from a policy angle, critiquing recent proposals to eliminate taxes on tips:
“This is one of the stupidest proposals… it will dramatically hurt hospitality workers by cutting into their future Social Security benefits.”
Kotlikoff sees political maneuvers to reform tipping as superficial, focusing on short-term gains instead of long-term financial stability for workers.
While Callahan’s real-world experiments and Kotlikoff’s policy critiques reveal the challenges of reform, Lynn’s insights explain why the tipping system is so hard to change.
3. The Customer Factor: Resistance to Change
The customer reaction to changes in tipping practices is a significant hurdle, and both Callahan and Lynn found themselves surprised by just how attached diners are to the traditional model.
- Callahan’s experience with adding service charges showed that customers want the illusion of choice when it comes to tipping. Even when paying the same amount, they preferred voluntary tipping over mandatory fees.
“We thought our guests would support a service charge model, but instead, they saw it as taking away their control.”
- Dr. Lynn backs this up with data, showing how tipping is more about the social dynamics of the dining experience:
“People care more about being seen as good tippers or being socially approved than about whether the service was excellent.”
- Dr. Laurence Kotlikoff, on the other hand, is less concerned with individual consumer behavior and more with the bigger picture:
“Service workers’ paychecks might look better in the short term, but if these tax reforms pass, they’ll lose far more in future benefits than they gain today.”
For Kotlikoff, customer preference for tipping must be balanced against workers’ long-term financial security.
4. Long-Term Impact on Workers
While each expert offers a different perspective, all three are concerned about how tipping—or its reform—affects the workers themselves. This is where the real stakes lie.
- Callahan sees tipping as a necessity for restaurant workers to make a decent living:
“My servers are making $40 an hour in compensation, between tips and wages, working 30 hours a week.”
But he’s quick to admit that this dependence on tipping comes with financial instability for many.
- Dr. Lynn, while focused on the customer side, also acknowledges the challenges:
“Most servers don’t realize that their service doesn’t strongly affect tips, but they’re still motivated by the belief that they have control over their income.”
This disconnect leaves workers vulnerable to inconsistent earnings.
- Dr. Kotlikoff focuses on financial sustainability, warning that reforms like eliminating FICA taxes could cripple workers’ Social Security benefits in the future:
“For every dollar a low-wage worker contributes to Social Security, they get far more in return. Cutting those contributions will cost them dearly at retirement.”
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