Do Tips Increase Workers' Income?

25 Pages Posted: 1 Dec 2013 Last revised: 3 Feb 2014

See all articles by Oz Shy

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: February 2, 2014


The paper constructs a model of service providers who compete in service and labor markets simultaneously to analyze the effects of tipping on hourly wages and total tip-inclusive hourly worker compensation. An increase in the tipping rate reduces hourly wages. Total worker compensation increases at different rates depending on the market structure, market coverage, and employment level; with the exception of price-taking (competitive) service providers where the tip-inclusive hourly income declines with the tipping rate. The paper develops an index of "effective tipping" that measures the net percentage change in total hourly worker compensation associated with each tipping rate.

Keywords: Tipping, hourly wage, tip-inclusive hourly income, tipping as a social norm

JEL Classification: D43, J33, M52, Z1

Suggested Citation

Shy, Oz, Do Tips Increase Workers' Income? (February 2, 2014). Available at SSRN: or

Oz Shy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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