On Tipping, Culture and Supremacy of the American Dollar

This post was inspired by some comments made one of my favorite authors in the blogosphere, whom I respect very much. The issue at hand and the subject of my musings is this: When (if ever) is it appropriate to tip in China? If you do tip, then how much? In dollars or in renminbi (RMB)? Before I spew forth on this issue, let me say that my interest is quite academic. I don’t really care if you are a tipper in general or not a tipper, if you are a cheap bastard or a benevolent philanthropist. I am more interested in the following questions:

- Why do different cultures have different ideas on tipping, what is appropriate, how it is done?
- What factors influence peoples’ decision making on tipping?
- How does culturally “different” tipping behavior impact the people involved, in the short term and in the long term.
- How do people’s assumptions regarding “correct behavior” evolve as economies change?

Let me also say that I am an economist by training, not an anthropologist or sociologist. So my perspective is definitely influenced by my profession. Finally, I do live in China right now, but that in no way makes me an expert on Chinese culture. As a third culture kid, I am probably not an expert on U.S. culture either.

Tipping in China

Generally speaking, there is no tipping in China. When I say there is no tipping, I mean that Chinese people usually do not do it. When you go to a restaurant, people pay the price on the menu, nothing more. In taxis, people pay the fare on the meter, nothing more. If one were to dine at an everyday Chinese restaurant and then leave a 20% tip, the staff people would either 1) try to give it back, 2) think you are less of a person for wasting your money, or 3) both. Note that this doesn’t apply to fancy foreign restaurants in Shanghai or Beijing, which operate on completely different norms altogether.

Chinese in general, and Shanghaiese in particular, are very frugal people. Personal savings rate statistics, by some estimates as high as 30% of disposable income, show that people in China do not part with money flippantly. As our Shanghai ayi would say, “Why buy bread in the morning when you know it always goes on sale at 6 p.m.?”This is may be one of the root reasons why tipping is not widespread here. Many people in China really value transparency in economic transactions. We bargain and decide on a price. It is what it is, nothing more. The contract is clear and everyone walks away with what they expected. Tipping, however, adds an element of uncertaintly to a transaction. After all, why would someone pay you extra if they didn't have to? If you could not trust them to pay out of benevolence, then why not just agree upon a fair price to begin with?

In contrast, tipping elsewhere in the world, such as in the United States, is often influenced by different norms. “Normal” restaurant tipping in the United States means leaving 10-20% of the bill for the server. If you leave less than that, then the server is often insulted. In addition, as minimum wage laws in the United States usually have exceptions for restaurant servers, these people really do depend on tips as part of their wages. That is, U.S. social norms regarding acceptable tipping behavior are so strong that they are codified into law.

When it comes to tipping, countries in Europe often operate somewhere in between these two extremes. Proper behavior in London when riding in a cab is to round your fare up to the nearest pound. In Germany, it is customary to leave 5% or so extra as a thank you for the server. Why not 20%? Well, one reason for this is that servers in Germany receive a fair wage without tips (by law). So customers do not feel obligated to leave more; they do not feel that they are impoverishing, taking advantage of or punishing the server with only a 5% tip. In addition, a service charge is often built into the price on the menu.

So, what then is right? How do we behave in different situations? Well, it is easy if you are German and in Germany – you will tip in accordance with established social norms, as will someone in China or the United States. But what do you do when you are outside of your comfort zone, say a China traveler dining in Italy? Clearly we see people behaving in both ways – complying with local tipping norms or adhering to the norms of the home culture (for better or for worse).

Now comes the tricky question. How does people’s behavior change in the following specific circumstance. The traveler in question is 1) visiting a location where tipping norms are different from home and 2) they are more wealthy (say just relatively speaking) than the server in question. What happens then? Is income disparity enough, in other words, to influence decisions regarding what is “right”?

Adoption Tours and Tipping Norms

For those of you not so familiar with the China adoption paradigm, most foreign adopting parents take a trip to China to pick up their child. They almost always do so through an arranged tour managed by their adoption agency back home. When on the tours from America, apparently it is an established norm for people to at least tip the guide and the bus driver and perhaps to tip everyone they see (not sure). The stated argument for doing so is that *tips form an essential part of these people’s income* so not doing so is effectively depriving them of their market-based wages.

If we know that, in general, there is no tipping in China, then is this argument plausible? My answer is, well, perhaps. Imagine with me the following scenario.

Year 1 of adoption tours to China (say 1995 or so) – Entrepreneurial tour operator sees opportunity to develop service package for visiting Americans. Hires bus, driver, guide at market rates. All goes well. Tour operator is earning a routine return on his investment.

Year 2 – Tour operator notices that tour guide and bus driver have new houses. Investigates and discovers that the American tourists are providing the employees with tips which increase the employees’ wages from a market rate to above market rate. Tour operator goes to employees and says that their salaries will be decreased as it is only “fair” for the tour operator to reap some or all of the tip revenue. Employees accept the salary decrease because they have no second best alternative. Employees are now earning the same amount as at the beginning of Year 1. The only difference is that now they are indeed dependent on the tips of the tourists to survive. The only catch is that the benefit of the tips ultimately ends up with the entrepreneur.

Years 3 and beyond - More and more entrepreneurs enter the market and the returns of all players eventually go to zero economic profit (i.e., everyone earns only a normal, routine accounting profit).

The question is this – if the first busload of American tourists knew what would happen, would they have tipped? If we revisit my original question about how perceptions of income disparity influence our decisions about tipping behavior, I would guess yes – even if, followed to its rational conclusion, the tip would result in no net improvement in circumstance for the recipient.

Since I have been rather long winded on this post, I will save the remainder of my thoughts for next time. Part two will focus on the persistent idea that Chinese people prefer to receive American dollars over RMB in tips. Preview here.