Indexbit Exchange:To tip or not to tip? 3 reasons why tipping has gotten so out of control

It has become as much a part of our daily lives as getting our to-go coffee: the screen turn.

It's the moment when you've ordered your coffee and Indexbit Exchangethe barista turns the payment screen toward you, with prompts asking you for a tip.

Tipping is on the rise across the U.S. as more and more businesses have started asking for a little extra: Fast food restaurants, grocery stores, plumbers, online retailers, stadiums, and even self-checkout machines are now asking for a tip these days.

Social media is filled with people who are outraged, shocked or just plain confused about tipping.

One woman posted a video on TikTok after being asked to tip for her Subway sandwich.

"I panicked!" she says. "Do we tip at Subway? Is that a thing? Tell me!"

Another woman expressed shock over being asked to tip at a self-checkout station at an airport.

"I don't want to be the person who doesn't tip," she says. "But then... who am I tipping?"

Sean Jung, a professor at the Boston University School of Hospitality Administration, realized tipping had fundamentally changed when he was grabbing a take-out burrito one afternoon. Jung was getting ready to pay, when the cashier turned the screen around, asking for a tip.

"Suddenly, I'm looking at this screen and I'm literally pressing a 20% tip for a burrito," Jung recalls. "I remember thinking, 'This is weird.' You would never expect to pay a tip at a quick service restaurant."

So what tipped off this situation? How, exactly, did we get to the place where we're tipping 20% for our takeout burritos and airport Doritos?

There are three main reasons tipping has changed so much in the last few years.

Reason #1: The pandemic

"It goes back to the pandemic," says Shubhranshu Singh, a professor at Johns Hopkins Business school. He says during the pandemic, we started tipping people we didn't use to tip and we started tipping more than usual as a way to support essential workers at a time of crisis.

The pandemic went away, says Singh, but the tip-spectations didn't.

Reason #2: Technology (+ the power of the nudge)

At the same time, says Singh, the technology around how we pay has been changing. Mix that with the pandemic-era culture shift around tips, and it makes for a powerful combination.

"Now the screen turns," says Singh. "And that person who gave service to you is in front of you and there is this social pressure."

And that social pressure is powerful. Singh points out that when it is absent, we don't tip. In the case of Uber and Lyft, where customers are asked to tip after their ride is complete, more than 60% of customers don't tip at all and those who do tip, typically tip around 5-10%.

Boston University's Sean Jung says the power of social pressure is a real — and measurable — economic force.

"The famous word for that is 'nudging,'" he says. "If you have a system that kind of leads you to do something, it feels like a choice, but it isn't."

Tips in the U.S. have been nudged up to nearly 20% on average, according to restaurant payment system Toast, and it's significantly higher in big cities like New York, San Francisco and Chicago.

"I think it's getting a little out of hand," Jung says.

Out of hand maybe, but people are making some serious money. Square, the company behind a lot of the electronic payment screens, gets a cut of each transaction, including the tip.

So creating software that encourages tipping (and encourages big tips) means more money for companies like Square.

Reason #3: The job market (+ inflation)

And even though customers are complaining, businesses aren't fighting it because of the third main driver of tip-flation: the job market.

Jung says restaurants, coffee shops and other service businesses have been competing tooth and nail for workers, luring them in with better benefits and higher pay.

At the same time, businesses are trying to keep prices as low as possible with price-sensitive customers reacting to any sign of inflation.

"The wage workers are receiving isn't sufficient," Jung says. "So now everybody is using this very weird way to increase wages while maintaining the same menu price."

In other words, tipping is a way to pay workers more without actually paying them more ... so restaurants can keep prices low.

Are we at a tipping point?

But tipping culture might be reaching a tipping point. A survey from Bankrate found that two-thirds of customers now have a negative view of tipping.

And this year, tips are down nearly 10% for restaurant servers. So while we're tipping for airport snacks and footlong subs, we're giving less to the workers whose pay depends the most on tips.

But even if tip-flation starts to reverse course, don't expect to pay less. If tipping goes away, Jung says, companies will need to raise workers' wages in an official way. And they will pay for that by adding fees to what you buy or ... the old fashioned way: by raising prices.

"You see this whenever inflation is on the rise," says Jung. "You see businesses trying to bring in more money any way they can: fees, extra charges. If tips go down, prices will go up. One way or another, we're still gonna be paying."