Örn B. Bodvarsson

Gratuities and customer appraisal of service: Evidence from Minesota restaurants

Abstract Psychological studies of gratuities stop short of providing conclusive results for three reasons. First, they have not adequately recognized the potential contribution of economic theory to the study of tipping; second, most psychology studies do not consider the quantity of service as an explanator of tips or do not measure it accurately; and third, psychological studies have typically used small samples taken from one restaurant. In this study, we tested an economic theory of tipping using a sample of seven diverse Minnesota restaurants. In a regression of tips on bill size, controlling for service quality, patronage frequency, and restaurants, the addition of service quantity contributes significantly to the regressions explanatory power.

An economic approach to tips and service quality: Results of a survey

Abstract Previous literature on restaurant tipping has generally found that diner assessment of service quality is a weak explanator of tip size. We argue that this finding is suspect because of two problems in the way service quality is measured. First, in these studies service quality measures are based on customer-supplied cardinal rankings of quality made after-the-fact. This falsely assumes interpersonal comparability of service. Second, quality rankings typically displayed very low variation because most diners reported service as having been good. If tipping is effective in promoting good service, low variation in quality rankings will result and quality will be an insignificant explanator of tips. We ask subjects how they would tip under hypothetical service quality scenarios e.g. when service is “satisfactory,” “very good” and “poor.” We survey 286 students at two universities in Minnesota and Alberta and find that service quality is actually a strong explanator of tips.

Why do diners tip: rule-of-thumb or valuation of service?

When diners decide how much to tip, is the decision based on social convention or on conscientious appraisal of server productivity? Previous researchers in economics and social psychology are generally inconclusive on this question. A common finding in the literature is that tip size and service quality are unrelated, a result usually obtained from OLS regressions. OLS is only appropriate if service quality is exogenous. It is argued that service quality is very likely endogenous in any regression of tip size; good quality encourages good tips, but server expectations of good tips encourage good quality. This simultaneity is accounted for by jointly estimating percentage tips and customer rankings of service quality on a sample of 247 diners in a Central Minnesota restaurant. Included are explanatory variables consistent with both the social psychology and economic views of tipping. In contrast to previous studies, it is found that service quality significantly affects tip size and when servers expect higher tips, customers rank service quality higher. Also it is found that patronage frequency and coupon redemption have no effect on percentage tips, but server gender influences quality significantly. It is concluded that the results are generally supportive of an economic hypothesis of tipping.

The Regulation of Migration in a Transition Economy: China's Hukou System

Unlike most countries, China regulates internal migration. Public benefits, access to good quality housing, schools, health care, and attractive employment opportunities are available only to those who have local registration (Hukou). Coincident with the deepening of economic reforms, Hukou has gradually been relaxed since the 1980s, helping to explain an extraordinary surge of migration within China. In this study of interprovincial Chinese migration, we address two questions. First, what is a sensible way of incorporating Hukou into theoretical and empirical models of internal migration? Second, to what extent has Hukou influenced the scale and structure of migration? We incorporate two alternative measures of Hukou into a modified gravity model – the unregistered migrants: (i) perceived probability of securing Hukou; and (ii) perceived probability of securing employment opportunities available only to those with Hukou. In contrast to previous studies, our model includes a much wider variety of control especially important for the Chinese case. Analyzing the relationship between Hukou and migration using census data for 1985-90, 1995-2000 and 2000-05, we find that migration is very sensitive to Hukou, with the greatest sensitivity occurring during the middle period.

A supply and demand model of co-worker, employer and customer discrimination

Abstract When racial wage differentials reflect customer, co-worker and employer discrimination, how can these sources of discrimination be theoretically and empirically distinguished? We develop a wage model fashioned around professional basketball that includes customer, employer and co-worker discrimination when there is racial integration. We find that the model is capable of: (1) predicting unexpected effects of the various types of discrimination on wages; (2) the three types of discrimination will interact nonlinearly; and (3) compensation attributable to co-worker prejudice is endogenous. Using data from the National Basketball Association, we find evidence consistent with co-worker discrimination by white players and customer discrimination by nonwhite fans.

Does immigration affect labor demand? Model and test

Numerous studies have concluded that immigration has very small effects on wages or unemployment, even when the immigration flow is very large. Three reasons suggested for this are that immigration: (1) is not supply-push, but may instead be driven by demand-pull factors; (2) is likely to cause some out-migration; and (3) may induce flows of other factors across the economy. Surprisingly, few studies consider another obvious explanation: immigrant workers also consume locally, which means immigration stimulates the local demand for labor. Previous researchers have generally ignored the measurement of immigrations effects on labor demand, perhaps because when immigration, out-migration, and immigrant consumption occur simultaneously in the same labor market, it is very difficult to isolate immigrations effect on labor demand. This paper measures the labor demand-augmenting effects of immigration using a two-sector model of a very special case in which the receiving economy consists of: (a) an export industry employing both immigrants and natives; and (b) a retail industry employing native labor that is driven by local demand. The model can incorporate both supply-push and demand-pull immigration as well as out-migration. The models important implication is that since immigration is exogenous to the retail sector, an unbiased estimate of the demand effect of immigration can be obtained without having to use instrumental variables estimation or other statistical procedures that may introduce new sources of bias. Fortunately, the economy in our model matches a very convenient test case: Dawson County, Nebraska. Dawson County recently experienced a surge in demand-pull immigration due to the location of a large export-driven meatpacking plant. This exogenous capital shock pulled in many Hispanic immigrant workers, who did not immediately seek work in the retail sector because of social and language barriers. This immigration led to higher retail wages and housing prices, confirming that immigration is capable of exerting significant effects on local labor demand.

Do higher tipped minimum wages boost server pay

Do tipped servers in states with higher tipped minimum wages earn more, ceteris paribus, than servers elsewhere? Using 1999 data on waitpersons and bartenders, little evidence is found of a premium to servers in states with more generous minimum wages.

Tipping and service quality: a reply to Lynn

Abstract In a Comment on a recent article in this Journal by Bodvarsson and Gibson (1999), Lynn (2000) criticizes the authors’ claims for why earlier studies on tipping find that tip size is only weakly related to customer evaluations of service quality. This paper presents a critical reply to Lynn’s Comment. Contrary to Lynn’s claims: (a) the weakness of the tipping-service relationship is likely not due to restricted variation in mean percentage tips across quality rankings; (b) ordinal ranking scales used to measure service quality do preclude valid statistical tests; (c) multi-personal, subjective questionnaires are suspect because there is no real evidence that words like “excellent” or “fair” actually do have common meaning across cultures; and (d) given that the surveys in Bodvarsson and Gibson’s study were completed anonymously with no rewards or punishments, there is no reason to expect atypical amounts of bias.

Migration in China from 1985 to 2000: The Effects of Past Migration, Investments, and Deregulation

During the 1980s and 1990s, interprovincial migration in China surged concurrently with three major developments in the economy: deregulation of migration, rapid growth, and substantial increases in foreign and domestic investments. To what extent did these developments influence the changes in interprovincial migration? In this study, data from the National Census and National Bureau of Statistics are used to estimate a more extensive modified gravity model compared to previous research. It is found that past migration substantially influences current migration, confirming that migrants strongly prefer moving to provinces with relatively large migrant enclaves. Greater levels of foreign direct investment (FDI) in the target destination were found to stimulate inmigration, particularly during the 1990s. The deep economic reforms made in the 1990s changed the structure of migration significantly.

Tax Evasion on Gratuities

Tax evasion on tips earned by servers is a pervasive problem, one that has received almost no attention in the tax evasion literature. The authors develop a model of joint server and employer tax compliance to derive predictions for how the customer tipping rate, the server’s sales and tax rate, and the expected IRS penalty on employers influence compliance by both parties. They test the model by examining interstate differences in reported hourly pay (wages plus reported tips) during 2001. They use the Occupational Employment Statistics surveys, data on IRS regional audit rates, data from each state’s food and beverage service industry, and information on each state’s minimum wage and tax laws to perform ordinary least squares and two-stage least squares estimation. Empirical results generally provide strong support for a number of the theory’s predictions.