Tipping isn’t a city in China. But it is a shameful institution that encourages racism, sexism, harassment, and exploitation of low-income workers while placing the burden of compensation on customers instead of business owners. If most restaurants and service-based industries in the world can exist without relying on tipping, why does the custom persist in the United States, and what would be a fairer, more sustainable alternative?
Welcome to Skeptical Sunday, a special edition of The Jordan Harbinger Show where Jordan and fact-checker, comedian, and podcast host David C. Smalley break down a topic that you may have never thought about, open things up, and debunk common misconceptions.
On This Week’s Skeptical Sunday, We Discuss:
- The federal minimum wage for tipped workers is $2.13 per hour — the same as it was 31 years ago (though it can be even less in some states under certain circumstances). Why is it the customer’s responsibility to pay these workers a fair wage?
- Why, contrary to the protests of whoever happens to be holding the purse strings, raising the minimum wage for the person serving you will not make your burger cost $25.
- How tipped workers are still expected to fulfill untipped tasks during their “down” time, but without a raise in compensation to make up for it.
- Why the institution of tipping encourages racism, sexism, harassment, and exploitation of low-income workers.
- How the custom of tipping came about, why it persists in places like the United States, and what we should be doing to replace it with something that would better serve the server and served, alike.
- Connect with Jordan on Twitter, on Instagram, and on YouTube. If you have something you’d like us to tackle here on Skeptical Sunday, drop Jordan a line at firstname.lastname@example.org and let him know!
- Connect with David at his website, on Twitter, on Instagram, on TikTok, and on YouTube, and make sure to check out The David C. Smalley Podcast here or wherever you enjoy listening to fine podcasts! If you like to get out of your house and catch live comedy, keep an eye on David’s tour dates here and text David directly at (424) 306-0798 for tickets when he comes to your town!
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Miss our two-parter with former Westboro Baptist Church spokesperson Megan Phelps-Roper? Make sure to catch up starting with episode 302: Megan Phelps-Roper | Unfollowing Westboro Baptist Church Part One here!
Resources from This Episode:
- Why Tipping Should Be Banned | Adam Ruins Everything
- Current Population Survey Data for Social, Economic, and Health Research | IPUMS CPS
- The Case Against Tipping in America | Eater
- How Does Dick’s Drive-in Pay Workers $19 an Hour with a Menu Completely Under $5? | KIRO
- Study Shows That, In Restaurants, Race Matters | NC State News
- Quantitative Evidence of the Continuing Significance of Race: Tableside Racism in Full-Service Restaurants | PubMed
- ‘Because They Tip for Shit!’: The Social Psychology of Everyday Racism in Restaurants | Sociology Compass
- Applebee’s Sorry for Racial Profiling at Missouri Restaurant, Fires 3 | USA Today
- CORRECTION: This is What Minimum Wage Would Be If It Kept Pace with Productivity | Center for Economic and Policy Research
- Minimum Wages for Tipped Employees | US Department of Labor
- How Tipping Hurts Women | Times Documentaries
- Tipping Really Isn’t a City In China | The Atlantic
668: Tipping | Skeptical Sunday
[00:00:00] Jordan Harbinger: Welcome to the show. I'm Jordan Harbinger, and this is Skeptical Sunday, a special edition of The Jordan Harbinger Show, where fact-checker and comedian David C. Smalley and I break down a topic that you may have never thought about, open things up, and debunk common misconceptions — topics, such as why the Olympics are kind of a sham, chemtrails, why toothpaste might actually be really bad for you, and lots more.
[00:00:25] Normally, on The Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people and turn their wisdom into practical advice that you can use to impact your own life and those around you. We have long-form interviews and conversations with a variety of incredible people from spies to CEOs, athletes to authors, thinkers, and performers. And if you are new to the show or you want to tell your friends about it, I always recommend our episode starter packs. These are collections of our favorite episodes, organized by topic. It'll help new listeners get a taste of everything that we do here on the show — topics like disinformation and cyber warfare, China and North Korea, technology and futurism, scams and conspiracy debunks, just like this one, investing in financial crimes, and more. Just visit jordanharbinger.com/start or take a look in your Spotify app to get started.
[00:01:12] Today on this edition of Skeptical Sunday, tipping — tipping is one of the worst things to happen to the American economy. And it may sound shocking, but statistics show that tipping actually encourages racism, sexism, harassment, and exploitation of low-income workers. And it's the perfect crime because it pits worker versus worker. It relies on empathy and our freaking good moods, which is some of us, you know, those are few and far between and removes the burden from corporations to pay something even remotely close to resembling a fair wage. Now, I'm not advocating not to tip. I just think we need to discuss what's really going on and how we've all been duped into participating in this nonsense.
[00:01:53] During the pandemic, one of the things I saw on Reddit that drove me crazy was people mistreating these hourly workers and servers and you then see some of your favorite restaurants going out of business. So I decided to be — hopefully, what a lot of people did is made the same choice, but decided to be like not a dick about everything and also to up my tipping game, big time. So instead of choosing the lowest tip in an app, I might choose that but then give cash additionally when the person comes by or just choose the highest one and not worry about it. As long as I know the app isn't like stealing the tips. Remember that whole debacle?
[00:02:24] David C. Smalley: Oh yeah. I tried that as well. I think a lot of people did. And I really think the tipped workers appreciated it for the most part.
[00:02:31] Jordan Harbinger: I hope so.
[00:02:32] David C. Smalley: It was hard. We all had to stick together during that time.
[00:02:34] Jordan Harbinger: That's what I'm saying. And so I started to see just how grateful some folks were when I started to tip a lot more, like not just 15 percent or not like bumping it to 20, but being like, "You know what? Here's like a solid amount of money that you can actually do something with." And a lot of people were really so appreciative that I was kind of like, "Holy crap." It's almost making me feel bad that I tipped low before or normal, I should say, before, because if you're this happy about, let's say 20 bucks on a $50 meal, you needed it. You need it more than I thought you did. And so—
[00:03:08] David C. Smalley: Yeah.
[00:03:08] Jordan Harbinger: I started thinking more and more about tipping and I just started to realize just how kind of unfair the whole system of tipping really is and how frankly confusing it is when I try to explain it to people from other countries. They're just like, "Wait, nothing of what you've told me makes any sense. Start from the beginning." And I can't make it make sense, David.
[00:03:27] David C. Smalley: You can't make it make sense. There are people who live this who are a tipped worker in Minnesota. They can't make it make sense to a tipped worker in California or in Texas. The laws are so incredibly spread out. I have some information on that for you that we can get into in a moment, but it's confusing across the board because there are very few federal minimum requirements on tipping and minimum wages and the rest are all up to the states. You may live in a place and then move down the street and your zip code may have different laws because of city ordinances. So it's kind of all over the place.
[00:03:59] Jordan Harbinger: But how did we even get there? Because when I go to other countries, nobody — if you tip, it's like 50 cents, because you're rounding up on a dollar. It's one of those like Middle Eastern economies where everything is kind of a tip and to even get something where you would never tip, you got bribed, I mean, tip somebody and like slash bribe somebody. So how did the United States end up with this weird tipping culture that just doesn't seem to be anywhere else?
[00:04:24] David C. Smalley: So tipping at one time it was considered like a bribe of rich people to skip the line or get better treatment than the poor people around. So it was kind of frowned upon for most of our history, but then in America, tipping had recently freed slave right after the civil war allowed bars and restaurants to employ former slaves without actually having to pay them because the people could pay them. And then, so they had money, technically they were getting paid and there was no federal law on it. So that's where it kind of started. And that's why in a weird way — and this sounds like a false flag or like "the sky is falling" type situation. But stick with me for this—
[00:05:03] Jordan Harbinger: Yeah.
[00:05:04] David C. Smalley: Tipping actually encourages like racism and sexism, sexual harassment, exploitation of low income workers. And it's the perfect crime.
[00:05:12] Jordan Harbinger: It sounds like they decided, "Hey, we can also still have slavery. We just have to call it tipping." And it's like, "Well, wait a minute. There's a lot of people who work for tips. And if this is built on, well, we don't really want to pay these. We can just let other people pay these people, but only if they want to." It's like, well, we're not too far from the original intent of what this was designed for.
[00:05:32] David C. Smalley: You're exactly right. There's no curiosity as to why it started right after slavery ended, which is the same thing for the high incarceration rates of the African-American community. It's the same issue. These things spiked right after the civil war because they were trying to grab on to what little bits they had left of keeping certain people in certain classes. And the reason it started to spread out to more people is during prohibition. When prohibition hit, then they were like, "Hey, this has been working for all the former slaves. Why don't we do this with everybody who works here because we can't sell this and we can't sell that. So I can't pay you as much. But hey, look, if you're willing to work for tips, I don't have to fire you." That's kind of where all of this started.
[00:06:14] Jordan Harbinger: It's so insidious, right? Because it pits workers against each other. And you read stories about that in the news. And it also relies on empathy. And like I said, my empathy spiked a bunch because I saw people just being so horribly mistreated IN videos on the Internet. And you'd hear stories from friends of yours that work in the service industry. And they're like, "Oh, I had the worst customer. And it's not just like, he was rude. It's like they threw something at me or like grabbed my butt on the way back from the table. And I have to be nice to them because of tips." And I'm like, this is just — it's so messed up. And not to mention it removes the burden from a business to actually just pay for the workers.
[00:06:53] David C. Smalley: Right.
[00:06:53] Jordan Harbinger: Which you can't get away with anywhere else. It's literally illegal in every other instance to do that.
[00:06:58] David C. Smalley: Look, tipping is literally one of the worst things to happen to the American economy, period.
[00:07:03] Jordan Harbinger: Yeah. I could see that.
[00:07:04] David C. Smalley: I'm going to be very clear. I'm not advocating for people not to tip we're in a situation right now in this country where people need it. They literally need those tips to live. But we do need to discuss what's really going on with the tips and how we've all been duped into participating into this madness. And you're exactly right when you say it tips employee versus employee, and it also relies on that empathy. So even though it's not the right thing to do in the broad spectrum, when you are at your table and your server is there, you feel that need to tip. And these corporations really thrive on that. So this change needs to happen at a higher level.
[00:07:38] There's an episode — I don't know if you remember that— Adam Ruins Everything.
[00:07:41] Jordan Harbinger: Yeah, I know Adam. Yeah, it's funny. I was just talking with him and I told him I'm going to shamelessly bite some of your show and do Jordan ruins everything, except I'm going to find a different name for it and he's like, "Go for it." So we have the blessing here.
[00:07:54] David C. Smalley: Awesome. Yeah. So that's cool that you know him. He actually did an episode. It's a very short episode. It's just a couple of minutes long on YouTube on Adam ruins tipping. He says, in that episode, I have a quote here from him. He says, "Why don't restaurants just pay a fair wage and charge more for the food. That's what other businesses do. When you buy a pair of jeans, it's just $50. It's not $40 and you decide if the stock boy eats tonight." That's the mind-blowing piece of this is this is the only sort of area where the employer gets to have that employee do what they want, but it's up to the customer to pay that employee a fair wage.
[00:08:30] Jordan Harbinger: Right.
[00:08:31] David C. Smalley: It's incredible.
[00:08:32] Jordan Harbinger: I don't get paid less when I release a stinker of a show. And that happens even with this glorious team that I have some things slipped through the cracks, right? And it's always my fault and I'll take the hit on that one, but I don't get less money for that.
[00:08:45] David C. Smalley: Right.
[00:08:46] Jordan Harbinger: The CEO of any company has a bad performance day, their pay isn't cut. Of course, you know, they're paid annually based on performance of the company, et cetera. So maybe that's not a great example, but managers, for example, are rarely paid at least daily, weekly, monthly on performance. You know, they can lose their job. Sure, we're in a free market here but it's less fluid than, well, not that many people came in and the ones that did were cheap bastards, who didn't want to tip. So you don't get to pay your rent.
[00:09:15] David C. Smalley: Yep.
[00:09:15] Jordan Harbinger: Yeah.
[00:09:15] David C. Smalley: You have a bad day or you're sad or you make mistakes. I'm the same way. I put out a bad show or an episode of my podcast, or I go on stage — you know, Dave Chappelle has a great line in one of his stand-up shows where he talks about getting booed after, you know, in a theater. He's got like 6,000 people that are booing him because he went on stage incredibly high and he's like, "I'm like Evel Knievel. I get paid for the attempt," you know? And that's a good thing because you know, crowds are different and sometimes you have an off night. You know, I'm a traveling touring comedian. Sometimes I just have an off night and I don't do very well. And it's a good thing. They don't say we're cutting your pay in half because you weren't as funny as you were the last time you were here.
[00:09:51] But these tipped workers, you know, if they have a bad day or they're having a bad moment, or sometimes they get a phone call or a text message that's upsetting, their boyfriend is leaving them, or their child is in the hospital or whatever, they get distracted with real life. And now they get an instant pay cut because that person at the table is going, "You didn't bring my water fast enough. My chips were not hot." It's such a demeaning thing to people that are working very hard and it goes beyond that. We're talking 1938 was the first federal minimum wage. And even in the first federal minimum wage tipped workers were paid less. And in 1991, they raised that to $2.13 an hour. And here we are 31 years later and it's still exactly the same. That's the federal minimum wage for tipped workers, $2.13 an hour. How incredibly insane is that?
[00:10:42] Jordan Harbinger: That doesn't — I mean, at that point, just don't give me anything because who cares? So if I'm a server at a restaurant and it's empty because there's construction and people can't get to our location easily, I'm making $2.13 an hour before tax.
[00:10:57] David C. Smalley: You are. Now there's some interesting pieces to this because the federal minimum wage is $7.25 an hour. The tipped worker makes $2.13 an hour. But as I said in the beginning, it's very confusing. And there are people that are listening to this who are tipped workers going, "That's not true." And they start spouting off their own state laws or their own regional laws. And they're probably right. It's so all over the place that it's hard to keep up with.
[00:11:19] The federal minimum is $2.13, but there's a thing called a tip credit that's allowed in most states that basically allows the $2.13 to be the minimum as long as your tips equal a minimum of the remainder, which would be $5.12 an hour to meet the $7.25 an hour minimum. So basically, they're saying they only have to pay the $2.13 as long as the tips equal the minimum $7.25.
[00:11:41] Jordan Harbinger: I see.
[00:11:42] David C. Smalley: And if your $2.13 plus your tips don't equal $7.25 an hour, the employer is required on the federal level to make up that difference. The problem is — do you live in one of the regions of New York that have a higher minimum wage or a lower minimum wage? Or — there's a provision in Oklahoma that says you can pay $2 an hour. And yes, the federal minimum doesn't allow for exceptions to the rule. You can pay $2 an hour. If you have less than 10 full-time employees. And full-time being a minimum of $30 hours a week, you're talking about a company who could have nine employees pay them all $2 an hour. And if those employees are under 20 years old and then have worked for you for less than 90 days, you can go even below the federal minimums.
[00:12:29] So it's just, again, it's all over the place. And you're talking about — in New York, it could change by zip code. It could change by region. Some states, if you have under 10 or 20 employees, it can be different. Some states have a $10 an hour minimum and tipped workers are part of that. California is one of the best states to be a server because you're going to get the state minimum wage, which is $15 an hour right now, plus your tips and there is no tip credit allowed. There's also no tip pooling allowed, which is another piece of this.
[00:12:56] But yeah, you could be at work making that amount. And if you get to the point where you finally hit minimum wage that week with your tips and the $2.13 an hour. You think, "All right, now I'm going to start raking in actual money on top of my minimum wage, your employer can go, "You need to go roll the silverware. You need to go take out trash. You need a mop. You need to clean the bathrooms." Things that you're not going to make tips in. And so it's a way for the employer to sort of control the whole influx outflux of money. And it's shockingly exploitative.
[00:13:28] Jordan Harbinger: The exploitation is shocking. The non-tip duties sound almost like a punishment, right? Rolling silverware, taking out the trash, mopping, cleaning the bathroom. I get that those things have to be done, but if you are not making any money doing it, or they're almost saying, "Well, hey, I want to give the table to this person. You don't get it." I mean, it just seems like there's such an easy way to make your job miserable and unfair and not pay you anything. And essentially forced you to have to leave.
[00:13:55] David C. Smalley: So they only have to pay more if you make less tips, right?
[00:13:59] Jordan Harbinger: Fine. But then you're just getting a minimum wage job, but maybe you signed up because you were going to totally make $25 an hour in tips at this place because everyone else does. And they're like, "Nah, you're going to mop and clean bathrooms and you're going to make $7.25," and you don't have any choice.
[00:14:12] David C. Smalley: It becomes strategy for the general manager or for that shift leader, right?
[00:14:16] Jordan Harbinger: Mm-hmm.
[00:14:17] David C. Smalley: So if you only have to pay more, when that person makes less tips. As soon as someone makes their minimum and tips, you can pull them off the floor and make them do other stuff and put the person who hasn't met their minimums yet on the big table, so that they get tips enough to cover that minimum wage, to keep your labor hours low. Do you see what I'm saying?
[00:14:32] Jordan Harbinger: Yeah.
[00:14:32] David C. Smalley: Instead of taking the person, who's not really a great server who probably should be doing the trash and the restrooms so that you provide a better service and that person makes more money. You go, "Well, you've hit your minimum. So we're going to move you to this area." I had this happen to me and I wasn't even tipped worker. I had minimum wage plus commissions in a sales job one time. And I did this huge deal. I mean, I was like 21 or 22 years old, and this huge deal came out to like $4,800 in commission for me. Well at the time that was like a month and a half worth of my wages. And so I was like — my mind was blown, I was like, "Oh man, I'm finally going to get caught up on all the things I'm behind on." My employer handed me my check and laid me off for six weeks.
[00:15:15] Jordan Harbinger: Oh my gosh.
[00:15:16] David C. Smalley: Yeah, it wasn't really enough time to have to go — they literally gave me my end date and my new start date and said, "If you find another job, good luck, but we don't need you back until this day." So that money ended up being just like I was getting paid for six weeks.
[00:15:28] Jordan Harbinger: Right. So you got to paid vacation that you didn't want.
[00:15:31] David C. Smalley: Exactly.
[00:15:32] Jordan Harbinger: Yeah.
[00:15:32] David C. Smalley: Exactly. I didn't get to catch up on all this stuff I was behind on.
[00:15:35] Jordan Harbinger: So in this way, especially with the server example, it sounds like you could actually — tipping can actually make service worse because it causes the business, theoretically, to make the worst, lowest tip servers do the most tables so that the business doesn't have to pay. So that they can make up for the tips and the best servers end up doing something else that doesn't end up getting them tipped. And of course, then they, hopefully, quit. But as we know the sort of myth of being able to switch and go to a different job on a moment's notice has been largely a myth. Right now, it's a really good time to switch jobs, but for most people during most of the years that we've been a — I don't know — a country it's really been harder to do that.
[00:16:13] David C. Smalley: You just hit the nail on the head, Jordan. That's exactly it. And service suffers as a result. Good workers suffer as a result. Workers who aren't good end up getting paid and get tips, they probably shouldn't have gotten. And then you end up in situations where you have to do tip pooling.
[00:16:31] Jordan Harbinger: Right. I was going to say, don't they try to solve that by just making everyone share tips, which also sucks.
[00:16:36] David C. Smalley: They tried to. For many years, it was legal to just do tip pooling where basically everything you got tipped went to the restaurant and the restaurant decided what was going to be distributed to the certain staff.
[00:16:47] Jordan Harbinger: Oh, man.
[00:16:48] David C. Smalley: Well, typically you have back-of-house people, who are the kitchen staff. Those people tend to make more than the servers. They're not making $2.13 an hour because they're not considered a tipped worker. So they're coming in at $15, $17, $19 an hour in the back, making the food. And then you have the servers running the food at $2.13. And those tips come in, but then everybody shares in the tip. So if you're a back of house worker or you're just running food as just someone doing the actual food delivery or you're in the back doing the dishes, making $10, $12 an hour, you're still going to get tipped out at the end of the night in a lot of places. And supervisors, managers, and owners, we're taking a cut of the tips. Owners that weren't even at work that day would come in at the end of the shift, take a portion of the tips, split it among everybody and leave. So they were taking a part of the tips as an owner.
[00:17:35] The Obama administration came in and said, "No more. You're not going to do that. That's illegal. You're not going to allow tip pooling." So during the Obama administration, that was illegal. The Trump administration rolled back that ban on tip pooling but added a few provisions. So now, you can redo tip pooling, but you just can't include supervisors, managers, or owners. So Trump now has allowed it for it to be tip pooled with back of house, with cooks, dishwashers, things like. So you still end up tip pooling in some areas. As far as I know, California doesn't allow it. I think California doesn't allow the tip pooling, pays minimum wage and is probably the best place in the world to be a server, which is why half the people you see on television are waiting tables because the money's not too bad out here.
[00:18:19] Jordan Harbinger: Sure. You just can't afford to live anywhere in California.
[00:18:21] David C. Smalley: Exactly. You can just need seven roommates.
[00:18:23] Jordan Harbinger: You have seven roommates. I was going to say, yeah, you have seven roommates. And you're probably snuggling up in one bed.
[00:18:28] David C. Smalley: But get this— and I don't know if you noticed this during our pandemic here, but some places started to add a fee to the checks.
[00:18:37] Jordan Harbinger: I saw that, but I thought that happened before it was like healthcare stuff. And I'm like, "Why am I paying benefits to your worker?" Not that, you know, I'd rather, they have benefits, but I'd rather you pay for them, restaurants.
[00:18:47] David C. Smalley: It's because the tip pooling was no longer allowed.
[00:18:49] Jordan Harbinger: I see.
[00:18:49] David C. Smalley: So now if you add a 20 percent fee to the check, that's a charge for the restaurant and then they can decide what to do with that money. So it's essentially a loophole to get around tip pooling. So now if you have to pay a 20 percent fee, a lot of people will see that fee and go, "Oh, gratuities included," and they won't tip.
[00:19:08] Jordan Harbinger: Oh, man.
[00:19:08] David C. Smalley: So now that person's not getting the check, they think the 20 percent fee, service fee is actually a tip, a forced tip. So they don't tip. And then the restaurant gets that money and gets goes right back into the pre-Obama times of getting to do whatever the hell they want with the tips, including keeping all portion of it.
[00:19:25] Jordan Harbinger: Ah, and I've got a tip for you — how about you support one of the sponsors that make this show possible? We'll be right back.
[00:19:33] This episode is also sponsored in part by SimpliSafe. Here's a true story. Joshua is a SimpliSafe customer a few months ago. He fell asleep with pizza rolls, still in the oven— haven't we all been there. This could have been disastrous and it was indeed for the pizza rolls. Thousands of dollars in damages to his kitchen and home or worse. Luckily, Joshua is comprehensive SimpliSafe system is equipped with everything to prevent break-ins and smoke detectors, to sniff out fires. He startled and woke to the sound of a 95-decibel alarm from his SimpliSafe base station. Seconds later, he got a call from SimpliSafe professionals monitoring to make sure everything was okay. Even if he missed the alarm, the call from SimpliSafe would definitely have woken him up. The pizza rolls sadly did not make it, but Joshua did. And he believes that SimpliSafe may have saved his life that night. I don't have much patience when it comes to setting things up and I can attest to my experience with SimpliSafe. It was really easy to get all of the sensors and cameras set up. But you know what I can do, I can safely bake pizza rolls.
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[00:20:38] Jordan Harbinger: This episode is also sponsored by Progressive insurance. Hey podcast bingers whether you love true crime or comedies, celebrity interviews, news, or even motivational speakers, you call the shots on what's in your podcast queue, right? And guess what? Now you can call the shots with your auto insurance too. Enter the name-your-price tool from Progressive. The name-your-price tool puts you in charge of your auto insurance by working just the way it sounds. You tell Progressive how much you want to pay for your car insurance. They'll show you a variety of coverage that fits within your budget, giving you options. Now that's something you'll want to press play on. It's easy to start a quote, and you'll be able to choose the best option for you fast. It's just one of the many ways you can save with Progressive insurance. Quote today at progressive.com to try the name-your-price tool for yourself and join the over 27 million drivers who trust Progressive.
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[00:22:01] Now for the rest of Skeptical Sunday.
[00:22:04] And look, I understand. I'm sympathetic to this. If we pay everybody this crazy higher amount, a burger is going to be 25 bucks. Now that's an exaggeration except here in California, where it already is 25 bucks, depending on what you're eating. But—
[00:22:17] David C. Smalley: Yeah, I was going to say it.
[00:22:18] Jordan Harbinger: —won't prices also go way up. I mean, that's what a lot of folks are worried about. I won't be able to go out, be able to afford going out to eat. And I don't know if you've been to the UK or anything like that, but if you go to freaking Pizza Hut and you want to have a pizza with two of your buddies, it's like 60 bucks or sometimes even more. If you want to feed your family, you can pay like hundreds of dollars to go get mediocre food somewhere in London.
[00:22:40] David C. Smalley: Yeah. Well, that's probably also because of the dollar versus the pound, right? I think there's a little bit of difference there.
[00:22:45] Jordan Harbinger: Yeah, but you know what I'm saying, like eating out in Europe is extremely expensive and I think people are trying to avoid that same thing happening here in the United States.
[00:22:53] David C. Smalley: So there's a place called Dick's Drive-in in Seattle that has completely squashed that myth. They pay $19 an hour. There is no tipping and their cheapest cheeseburger is $1.90. Their most expensive cheeseburger is around five bucks. So, no, I don't buy that. I think that — and this is a little bit of an interesting piece. It's going to sound very socialism, I think, to the listeners.
[00:23:16] Jordan Harbinger: That's all right. You're a communist. David is a communist.
[00:23:19] David C. Smalley: We really can't get a hold on this until we put some kind of limit on how much more a CEO can make than their lowest paid. And I know that sounds scary to people, but when we live in a world where the CEO is making $46 million in a year, and the person answering the phones is making 7.25 or the person waiting the tables is making $2.13 and is well below the poverty line, it's just out of control. So how about instead of, you know, 43 million, you make 25 million and pay everyone 15 bucks an hour, right? So there needs to be some sort of regulation in that, in my opinion, but I'm not really here to give all my opinions. I know I'm here to talk about the facts on why people should be skeptical of tipping.
[00:24:03] But as an example, every Starbucks has a tip jar. And when you swipe your card, you have the option to tip the baristas, right? Well, last year Starbucks had $26.5 billion in profit. And as of January of 2022, they have finally said, they're going to start paying $15 an hour.
[00:24:21] Jordan Harbinger: I mean, look, I understand the minimum wage argument and that's probably a whole different sort of show here.
[00:24:27] David C. Smalley: It really is.
[00:24:27] Jordan Harbinger: But it seems like the market will take care of getting people paid more if, frankly, they're losing workers and they can't afford to bring people in, unless they pay a reasonable wage. Like that's what the market does, right? But to your point, I also have read and heard that the minimum wage hasn't kept up with things like inflation even a little bit. It's like not even close. And it hasn't caught up with, let's say, productivity at all from the middle of last century to now. And that's a bigger problem, right? Not like, oh, we need to pay people more for doing menial work or whatever you want to call it, or minimum wage hourly work. It's that the value of that minimum wage has just gone down. It hasn't just stagnated. It's gone nowhere. And it's in fact gone south in terms of what you can buy with it.
[00:25:11] David C. Smalley: Yeah, productivity is the key piece. So from 1938 until about 1968 or 67 or so, minimum wage was incrementally increasing based on productivity. So how much that company was producing, right? How much the country as a whole was producing? Essentially, the worker was sharing in the growth of how much product was being put out. And then around 1965 to 1968, they decided to start connecting it to nothing instead of productivity. And so now you can see the wages just dropping while the profits are skyrocketing. I mean, if it were to have kept up with its productivity, right now, minimum wage, federal minimum wage would be $24 an hour.
[00:26:01] But the problem is these companies have just been increasing their profit margins, like Starbucks, making $26 billion in profit for a year and keeping the pay extremely low. And then they make everyone believe that if they paid this fair wage, they either go out of business or they have to charge ridiculous prices for everything or whatever, which scares people into voting against their own interests. I mean, I don't really need to call out individual companies, but Olive Garden is a prime example. They reported $4.3 billion in revenue in 2020, they pay their CEO $10 million per year in a salary, which works out to about $5,000 an hour by the way. While the average worker at Olive Garden across the nation makes $9 an hour.
[00:26:43] Now, if minimum wage would be $24 an hour, if it had kept up with productivity and it's only $9 an hour, I mean, think about the level of poverty you're creating and how the middle-class is shrinking because more and more people are working and poor while the upper-class is getting these giant $10 million salaries and the corporations and investors are getting billions of dollars in profit. And in March of 2021, Olive Garden finally made this general announcement that they would be paying $10 an hour as a minimum.
[00:27:14] Jordan Harbinger: Does this issue spill over into non-tipped workers as well? Because I know that it's kind of like knock-on effects in the economy. You know, that's the main argument is, oh, the prices are going to go up, et cetera. That means that most likely there's going to be knock-on effects for all workers, not just tipped workers.
[00:27:29] David C. Smalley: Right. Yeah. Because it becomes a mindset that this is how much you're worth. This is where you need to be as far as the salary goes. So even companies that don't have tipped workers sort of had this same sort of mindset. For example, Home Depot, they reported over $12 billion in profits with $195 billion in total assets, but they pay their cashiers around nine bucks an hour. Their sales associates make around $11.34 an hour. So tipping in restaurants is just, it's a way to offload costs on the customers. Like Apple, making you pay for your warranty and they call it Apple Care. Remember, when you would just buy a laptop and it was covered. And if something—
[00:28:07] Jordan Harbinger: Sure.
[00:28:07] David C. Smalley: —happened in a year or two, they fixed it or they sent you a new one. You now have to fund that. You have to buy your own warranty. Or Best Buy making you pay for a geek squad plan or they won't help you with your Best Buy products. Companies have been doing this more and more. Restaurants are doing it more and more. And restaurants just have this easy way out with tipping because it's like we talked about, it's guilt-driven. I don't feel the need to tip the guy at Best Buy, you know, but who knows? They may start that, you know if they feel like they can make more money at it.
[00:28:36] Jordan Harbinger: Sure. Yeah. "We're no longer paying our workers and if you want them to actually do anything with like help you carry that heavy ass TV out to your car, you got to pay for it."
[00:28:44] What about race coming into this? I know that there's been some studies on like Asians, for example, making far less than white or Latin or for anybody for that matter when it comes to tipping, which I thought was interesting. Like, I wasn't expecting this, but I guess race plays a part in pretty much everything.
[00:29:02] David C. Smalley: There's a study — people can look this up. It's from Eater Analysis. And it talks about the current population survey data on tipped workers. The one that they listed here is the Integrated Public Use Microdata Series. And that study showed that on average, this is a national average, white servers make $7.6 per hour, just in tips. So if you're white and you have a tipped job, on average, you're going to make $7.6 an hour, just in those tips. While Latin servers make $6.8 in tips. Black servers make $5.57 in tips and Asian servers make $4.77 in tips. And that same study notes that servers, the servers themselves also have a bias.
[00:29:50] So I'm going to pause here and just say, this could have a lot to do with people with tribalism, right? If most people in the country like 60-something percent of the country is white, if your server happens to be white, you feel more connected with that person. Subconsciously, you can identify with them more often, or you can say, "Well, that reminds me of me when I was 19," and then you tend to tip more, but if someone is of a different race—
[00:30:14] Jordan Harbinger: Right. "But I was never a 19-year-old Asian guy, so I can't relate at all."
[00:30:18] David C. Smalley: Right. You don't consciously do that. But I think people just tend to go, "Well, they're not one of me." And so they don't feel compelled to give that money. But the study also showed, interestingly, that servers also have the same bias in the other direction. So they will treat people of color differently, statistically, based on the perceived tips or the lack thereof.
[00:30:38] So there's this man named Vince Dixon. He wrote an article called The Case Against Tipping in America. And a lot of what I'm about to tell you comes directly from there. So I encourage people to go look that up, The Case Against Tipping in America by Vince Dixon.
[00:30:50] Jordan Harbinger: Yeah. We'll link it in the show notes.
[00:30:51] David C. Smalley: Yeah. Perfect. Perfect. He says in a 2012 study by Zachary Brewster, a sociology professor at Wayne State University, they found that, quote, "Servers may provide slower service to black diners, or try to turn the table over more quickly. And in some restaurants, servers actively avoid waiting on black customers because they believed that they would lose out on tips. In some instances, restaurant staff played games in which servers tried to stick one another with black tables or they developed code words with one another to warn each other when a black table is seated. This behavior was sometimes allowed by management."
[00:31:28] And in one 2012, Brewster surveyed 200 servers from a bar and grill style restaurant or multiple bar and grill style restaurants. And he asked the servers about their perceptions of black diners and whether they'd seen discriminatory behavior or whatever by other employees, most respondents admitted to providing different levels of service based on a diner's race, or they at least admitted to witnessing another server do so at least sometimes.
[00:31:53] And in similar studies published by Brewster and colleagues, the servers who admitted to profiling black customers justified their actions by claiming that black patrons demanded more service but tipped less. And another study found other sentiments published online and message boards for waiters, including — Applebee's even fired one person because they tracked down who it was at a location in Missouri for racial profiling.
[00:32:17] Now, here's the kicker. Research does show that black diners appear to tip less than white diners by about three percentage points, but the reasons are nuanced and really unknown. So even if the difference is only three percent across the board, the perception that they're going to tip less creates this issue of them actually being treated differently. So once again, this just drives another nail in the coffin of why tipping is just terrible. It just encourages racism. When if there was no tipping allowed and everyone made a fair wage, we wouldn't even have this issue that there would be no reason to treat anyone differently, to begin with.
[00:32:53] Jordan Harbinger: Unless you're actually a racist, right?
[00:32:56] David C. Smalley: Absolutely.
[00:32:56] Jordan Harbinger: This encourages like the subtle nuanced racism that you don't think is there.
[00:33:00] David C. Smalley: Yep.
[00:33:00] Jordan Harbinger: But if you're actually a racist, you're still going to be a racist a-hole regardless of whether or not you tip or not, you're still going to give crap service to somebody you don't like because of the color of the skin, because you're a piece of crap, not because of the tips.
[00:33:10] David C. Smalley: Absolutely.
[00:33:11] Jordan Harbinger: So I don't know. Yeah. The problem may not be entirely solved there, but it may indeed be reduced. Sexual harassment I know is also a thing. I mean, I just don't like to hear some of the crazy stuff that happens to them and show fans write in with crazy stuff that happens to them for Feedback Friday. And some of it is, you know, "I'm working on a restaurant, my manager or a customer does X, Y, Z." And it's just, it's shocking. I can imagine it's more widespread than people think.
[00:33:34] David C. Smalley: Oh yeah. I saw one that I wasn't able to verify this, but I want to throw this out there as an unverified piece of information. I saw a mention online that 65 to 70 percent of tipped workers are female. That sounded high to me, but it's important to know that they're definitely the majority. I don't know exactly what the number is, but they're definitely the majority. And we already know, I mean, sexual harassment is already a huge issue in foodservice. And when you take that and you force workers to rely on the kindness and generosity of a patron, that's also known as how much they like you or how likable you are. Now, you're talking about just piling on reasons to contribute to abuse or sexual harassment.
[00:34:15] From that same Vince Dixon article in the case against tipping. He says, "That the notion of this is borne from data showing that women working in restaurants in states with lower minimum wages for tipped employees are twice as likely to report sexual harassment than those who work in states who have a minimum wage for all workers." So women in these states were three times more likely to report being told by management to dress sexier or to alter their appearance or whatever. Like imagine what the customers are saying to them in order to get those tips. I mean, it's just, it's bizarre. And if a woman thinks, "Hey, if I have this low cut shirt and I have my boobs pushed up, I can see an increase in my tips." Then they're going to go to what makes the most money sometimes. And so it fosters more sexual harassment, even if we don't realize that's what we're consciously doing.
[00:35:05] Jordan Harbinger: Yeah. I mean, I've had friends of mine sort of tongue in cheek, say, they'll go get maybe an augmentation, breast augmentation. And they'll say, "These things are going to pay for themselves." And they're not really kidding.
[00:35:14] David C. Smalley: Yep.
[00:35:14] Jordan Harbinger: You know, they're not really joking about that.
[00:35:16] David C. Smalley: Yeah.
[00:35:17] Jordan Harbinger: And you know, some of my friends are little out there, but I don't think it's that unusual, right?
[00:35:21] David C. Smalley: Yeah.
[00:35:21] Jordan Harbinger: I don't think it's a ridiculous statement either. I think it's probably quite true.
[00:35:25] David C. Smalley: Yeah, absolutely.
[00:35:26] Jordan Harbinger: So how do we fix this? I mean, it looks like, it sounds like, you know, Cami Dave over here is trying to get a federal minimum wage increase. And I say that — I also say that tongue in cheek, of course, but what? Tie it back to some sort of metric here.
[00:35:39] David C. Smalley: I think so. I think a percentage, whatever the CEO makes type situation. We definitely did tie it back to productivity because you can look at charts online of when minimum wage stopped growing or when pay started dropping in comparison with productivity and corporations' profits. You'll see that we used to tie it to productivity and then we stopped. And so now that allowed the corporations to make more money and pay much less.
[00:36:05] And here's the issue about all of this, whatever we were talking about a tipped worker going into work and making their $2.13 an hour, getting enough tips to equal the other $5.12 an hour. So now they're making $7.25 and then they have to go roll silverware for three hours. There are stipulations like, well, at least 20 percent of your work must be tipped work in order for you to be a tipped worker. Who's managing that at the local diner in Madison, Wisconsin, down the street, from where someone grew up? If a 19 or 20-year-old had to do 30 percent of work that was not tipped work and they barely made minimum wage or they didn't get opportunities to meet — who are they going to call? Right? Are they going to have a lawsuit? Are they going to go hire an attorney? Like how hard is it to really sue your employer? And then if you do that, you're certainly going to get blackballed.
[00:36:54] Jordan Harbinger: Sure.
[00:36:54] David C. Smalley: You're definitely going to get harassed at work or fired, or your hours are going to get cut. The department of labor found that in 2016, the foodservice industry owed $39 million in back wages.
[00:37:05] Jordan Harbinger: Holy smokes. That's a lot.
[00:37:07] David C. Smalley: And it was one of the largest violators of wage labor laws. And that's just the ones that were reported. For everyone that wasn't reported, for everyone that didn't want to start trouble, or just said, "Screw it, I'm going to quit my job and go work for Subway," those didn't even get reported. It was so egregious that the Obama administration banned the whole tip pooling thing back in 2011. And I already told you, you know, Trump did it again, but this compromise was agreed on by Congress. So you can't even really just blame one president or another. But honestly, I think the only real reason to the only real way to fix this. It's not only increasing the minimum wage on a federal level but tie it back to productivity. So that employers share in that profitable growth of a company. And then we can slowly phase out tipping just like Europe has.
[00:37:50] And I think in order to prevent what you were talking about, where, you know, a pizza is 70 or 80. I think we could tie some sort of maximum profit to it to say, "Look, we want you to be profitable. We don't have a problem with you making $300 million as long as you're paying your employees a livable fair wage." I don't see. What's so hard about that.
[00:38:09] Jordan Harbinger: Yeah. I don't think you have to cap profits at all. I mean, honestly, again, it might be expensive, but those businesses survive just find out there. That's the thing is Europe might be slightly more expensive and people get used to paying a little bit more for things like going out to eat, but those businesses all survive. It's sort of a myth that making things slightly more expensive if they even have to get more expensive at all, in order to fund this is going to damage that business.
[00:38:33] I'm definitely — again, I say this on every show, but I'm a free-market guy. The thing is the free market can handle this. The free market can handle this without making it just a horrible, crappy experience for workers at the same time. It can do that.
[00:38:47] David C. Smalley: Yeah, I agree. And rather than putting in those simulations, I was talking about, it might even just happen naturally. If you have to pay this minimum wage at $15 or $20 or $25 an hour, and that becomes the new norm. Maybe naturally your profits will just go down a little bit, or maybe you tell the CEO, "Hey, instead of paying you 14 million, we're going to pay you 12.6 because we're trying to cover some hourly rates." Like what's wrong with that?
[00:39:11] Basically, Jordan, the way it's going right now, this is a race to the bottom. We're absolutely tanking it. So to protect the tipped workers, to protect people, I just think, not only do we need to do something about this on the federal minimum wage level, we all need to be really skeptical about the whole concept of tipping in the first place.
[00:39:26] Jordan Harbinger: David, thank you very much, Cami David. I really appreciate your time and expertise.
[00:39:31] David C. Smalley: Thanks, brother.
[00:39:34] Jordan Harbinger: I wanted to give you a preview of one of my favorite stories from an earlier episode of the show, Megan Phelps-Roper. She used to belong to one of the most hateful religious cults in America, the Westboro Baptist Church. She was born into this church and she later escaped. To hear her tell the story firsthand, it's really incredible.
[00:39:53] Megan Phelps-Roper: I started protesting when I was five years old. But even at that first picket, there was a sign that said, "Gays are worthy of death." So God hates fags is what Westboro's message that we became known for. We were the good guys and everyone outside the church was evil and going to hell. And we had the only message that would bring the world any hope. We had to go and warn people. These terrible things are happening. And if you want this pain to stop, then you have to change because God isn't going to change.
[00:40:22] After the September 11 attacks, we had the sign that said, "Thank God for September 11." What were we thinking? This massive crowd comes down. We were at this corner of this intersection of these three streets. By the time they actually reached us, we're just enraged. There was no space between us and them. It got really dicey. One of my cousins gave his signs to somebody else and like started standing on top of a trashcan, pretending like he wasn't with us. They were again, incredibly intense because obviously, the circumstances are so sobering.
[00:40:55] It brings me incredible sadness to think about now. I can do this forever. My family, they would refuse to have any contact with me at all once I left. Somebody that we had confided in, sent a letter to my parents and told them that we were planning to leave. And then that email came in — and we left.
[00:41:15] Jordan Harbinger: For more with Megan, including the details of her harrowing experience and escape, check out episode 302 of The Jordan Harbinger Show.
[00:41:25] Thanks again to David C. Smalley. A link to the show notes for the episode can be found at jordanharbinger.com. Transcripts are always in the show notes. I'm at @JordanHarbinger on both Twitter and Instagram, or just hit me on LinkedIn. You can find David Smalley at @davidcsmalley on all social media platform, at davidcsmalley.com or better yet on his podcast, The David C. Smalley Show. Links to all that will be in the show notes as well.
[00:41:48] This show is created in association with PodcastOne. My team is Jen Harbinger, Jase Sanderson, Robert Fogarty, Ian Baird, Millie Ocampo, Josh Ballard, and Gabriel Mizrahi. Our advice and opinions, they're our own, and I'm a lawyer, but I am not your lawyer. So do your own research before implementing anything you hear on this show. Remember, we rise by lifting others. Share the show with those you love. And if you found this episode useful, please do share it with somebody else who needs to hear it. In the meantime, do your best to apply what you hear on the show, so you can live what you listen, and we'll see you next time.
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