Economics of tipping

Madman, who runs Shiok, a restaurant specializing in Far-Eastern cuisine, has a nice post on the restaurant business in general, and on the difference in the expectations of Indian and Western guests. Towards the end, he has some general observations about how Indians tip.

Over at Marginal Revolution, Tyler Cowen has a nice post on tipping in restaurants, prompted by a New York restaurant's decision to replace it with a 20 % service charge. He provides interesting links, too.

Here is one of the hypotheses he puts forward for why a restaurant might move from tipping to a service charge:

2. The balance of power in labor markets is shifting against workers. We therefore see owners trying to capture tipping income. Some of this income will be given back in the form of higher wages, but some of it will be kept by owners. Perhaps this is the most palatable way of rewriting the implicit labor-management contract.