The effect of the minimum server wage on restaurant guest tipping behavior

ABSTRACT

Restaurant server income is predominantly composed of tips received from guests and the minimum server wage received from restaurants. Grounded in equity theory, this study investigated the effect of the minimum server wage, in combination with service quality, familiarity, and perceived fairness, on tipping rate. An online scenario-based 2 (minimum server wage) x 2 (service quality) experimental design was conducted. Results revealed that the minimum server wage and familiarity with tipping have moderating roles on the indirect effect of service quality on tipping rate via perceived fairness of tipping. Findings provide new information to researchers and industry stakeholders on the effects of the minimum server wage on guest tipping behavior.

KEYWORDS:

• Minimum server wage
• tipping
• restaurants
• perceived fairness

Acknowledgments

The research team gratefully acknowledges the support of the William F. Harrah College of Hospitality in conducting this study.

Notes

1. As tips are frequently under-reported to taxation authorities, the magnitude of tipping needs to be estimated (Azar, 2009, 2011). Azar estimated the magnitude of tipping in American restaurants in 2005 and 2009 by applying a weighted-average tip percentage of 18.8% (Parrett, 2003, Table, p. 14) against an aggregate of relevant foodservice sales as per the Statistical Abstract of the United States. Following Azar’s approximation method, the estimated 2017 economic value of tipping of $68.4 billion is the product of a weighted-average tip percentage of 18.8% and total foodservice sales of $363.9 billion, composed of drinking places (alcoholic beverages) – $25.7 billion; full-service restaurants – $290.9 billion; and snack and nonalcoholic beverage bars – $47.3 billion (ProQuest, 2019).