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The driving forces behind 'tip-flation'

ARI SHAPIRO, HOST:

How much do you tip? Where do you tip? Seems like everyone is talking about the spread of tipping, and it looks like customers might have reached a tipping point as NPR's Stacey Vanek Smith reports.

STACEY VANEK SMITH, BYLINE: It is summer here in New York, and that means cold brew season.

UNIDENTIFIED CASHIER: What can I get for you?

SMITH: Could I get a cold brew, please?

UNIDENTIFIED CASHIER: Yeah. Are you card or cash?

SMITH: Card.

UNIDENTIFIED CASHIER: OK.

SMITH: But this year, the cold brew is not warming my heart like it usually does because my 16-ounce cold brew costs 5.25. And that is before this moment.

UNIDENTIFIED CASHIER: You can just tap right there in a moment.

SMITH: Tap right there - the barista turns the payment tablet towards me, and there are my tip options, starting at a dollar. It's nearly a 20% tip. My cold brew is now 6.25.

Tipping - it is costing U.S. consumers a lot, and we are all up in our feelings about it. Social media is filled with people who are outraged, shocked or just plain confused about tipping.

(SOUNDBITE OF MONTAGE)

UNIDENTIFIED PERSON #1: The girl just now at Subway giving off bad vibes because I didn't tip - so do we tip at Subway? Is that a thing?

UNIDENTIFIED PERSON #2: Dude, tipping culture is out of control. Look at this. It's asking me to tip on freaking car parts, dude.

UNIDENTIFIED PERSON #3: I picked up a snack at one of the airport convenience stores. And I used the self-checkout, and I was asked to tip at least 20%. I don't want to be the person that doesn't tip, but then, who am I tipping?

SMITH: So how did we get here, to the place where we're tipping 20% for airport Doritos?

SHUBHRANSHU SINGH: The pandemic hit us, right?

SMITH: Shubhranshu Singh is a professor at Johns Hopkins Business School. He says during the pandemic, we started tipping people we didn't use to tip, and we started tipping way more than usual as a way to support essential workers at a time of crisis. The pandemic went away, says Singh, but the tip-spectations (ph) did not. At the same time, the technology around how we pay has been changing. And all of that combined to create that dreaded tap-here moment - aka the dreaded screen-turn.

SINGH: Now the screen turns, and that person who gave service to you is in front of you, and there is this social pressure.

SMITH: Social pressure. Sean Jung teaches hospitality administration at Boston University. He says this social pressure is a powerful and measurable economic force.

SEAN JUNG: The famous word for that is nudging. And if you have a system that kind of leads you to do something, it feels like a choice, but it isn't.

SMITH: Jung says the national average for tipping has been nudged up to almost 20%, and it's a lot higher in cities like New York, San Francisco and Boston.

JUNG: In my own opinion, I think it's getting a little out of hand.

SMITH: Out of hand maybe, but people are making some serious money. Square, the company behind a lot of the electronic payment screens, gets a cut of each transaction, including tip. So more tips mean more money. And even though customers are complaining, businesses are not fighting it because of the third main driver of tip-flation (ph) - the job market.

JUNG: A lot of people just didn't come back after the pandemic.

SMITH: Jung says restaurants, coffee shops and other service businesses have been competing tooth and nail for workers - luring them in with better benefits, higher pay. At the same time, they are trying to keep their prices as low as possible. Tips are a way to increase worker pay without having to pay for it and raise prices.

JUNG: The wage they're receiving isn't sufficient enough, so everybody is using this very weird way to basically increase their wages while maintaining the same menu price.

SMITH: But it seems like tip-xhaustion (ph) might be setting in. A survey from Bankrate found that two-thirds of customers now have a negative view of tipping. And this year, tips are down nearly 10% for restaurant servers. But even if tip-flation starts to reverse course, don't expect to pay less. If tipping goes away, Jung says, companies will need to raise workers' wages. And they'll pay for that by raising prices or by adding fees, like a service fee, or like the 50-cent special milk fee I paid.

UNIDENTIFIED CASHIER: What kind of milk, just whole milk?

SMITH: Can I get, like, a oat milk or something?

UNIDENTIFIED CASHIER: Yeah, of course.

SMITH: Grand total for my cold brew, by the way, $7.53.

Stacey Vanek Smith, NPR News. Transcript provided by NPR, Copyright NPR.

Stacey Vanek Smith is the co-host of NPR's The Indicator from Planet Money. She's also a correspondent for Planet Money, where she covers business and economics. In this role, Smith has followed economic stories down the muddy back roads of Oklahoma to buy 100 barrels of oil; she's traveled to Pune, India, to track down the man who pitched the country's dramatic currency devaluation to the prime minister; and she's spoken with a North Korean woman who made a small fortune smuggling artificial sweetener in from China.