Economics of Tipping (1 Viewer)

[jral]

Hi,

I was recently having a discussion with an acquaintaince of mine. His argument was that tipping in countries that already employ waiters at minimum wage (e.g. Canada) should stay because if they removed the tipping, it would upset the market equilibrium by making the jobs of waitering undesirable (because they would now pay less). What would be a good way to rebutt this?

 

[williams180]

i feel waiting is already undesirable. However tipping is simply a joke. You should only get paid by your employee. Tipping creates an inefficient allocation of monetary value. As well as this it essentially an informal sector of an economy making it hard to track money and it cannot be taxed. As far as market equilibrium there will always be people with little skills who will have to take up positions and they will have no bargaining power over employess so basically it wouldnt really effect the market equilibrium. If anything if waiters were to be in high demand they would get paid more in a base salary

 

[blakegman]

if waiting becomes undesirable then employers will struggle to find enough people to fill positions, so they would be forced to improve its desireability through some sort of remuneration, probably in the form of higher wages until supply=demand. kinda like what williams said

 

[Demandred]

It's mostly about incentive and assymetric information, not about wages and "efficient allocation of resources". In a world where effort cannot be measured, additional monetary incentives are added to ensure that input effort is maximised.

 

[fishy89sg]

what is 'tipping'?