What if Tipping Became the Norm at McDonald's? Best Answers By Art Carden

I got a lot of great comments on last week’s post about what would happen if tipping became the norm at McDonald’s. See especially these comments by Eric Rall, Jeff (nice catch, but I’m using “McDonald’s” as a stand-in for all fast food), Marcos Portillo, and Tim.

The answer, which is basically a paraphrase of what Landsburg says in his Price Theory textbook, is that fast food workers wouldn’t see an increase in their take-home pay.

Fast food is the epitome of low-skill, low-wage labor. Indeed, I have a hypothesis I want to test someday that fast food and retail selects the part of the skill distribution that would have been in agriculture fifty or a hundred years ago. Hence, comparing retail workers’ wages today to retail workers’ wages and working conditions in 1955 compares apples to oranges. An apples-to-apples comparison would look at how today’s retail workers’ wages and working conditions compare to those in the lowest-skill occupations, like agriculture. Even if real wages haven’t changed, working in an air-conditioned McDonald’s or Walmart is almost certainly preferable to outdoor agricultural work. But that’s another conversation for another day.

In the long run, the prospect of tips will attract more workers into fast food, lowering the wages firms have to pay to attract workers. On net, workers end up earning whatever they would have earned before, just with a different composition (more tips, lower wages).