Tipping in the Gig Economy

I’ve just moved back to the US in August 2019 having spent 10 years living in the UK and doing business all over Europe. As you might imagine, I’ve experienced a number of reverse culture shocks on my return. Some of them are well-known: guns are everywhere, Americans put the flag on everything and everyone all the time, and Americans are just wonderfully friendly.

Tipping has been a shock coming back. There is just so much of it. Tipping is not far from the heart of employment law, but I’m going to just talk about it, not the whole employment situation.

I ordered my first attempt at food delivery by GrubHub and the result brought this all to the fore. Tipping in the gig economy is bullshit.

Tipping’s History

You can see Time Magazine’s history of tipping and its connection to Civil War-era attitudes, or read an academic history Tipping: An American Social History of Gratuities. Americans are relatively unique in how pervasive it is, moreover they’re relatively unique in permitting a lower minimum wage to people who earn tips. (43 of the 50 states permit it)

My thinking

In America tipping and “gratuities” are not really optional. Most workers who receive them are getting a very large share of their wages from them. Waiters, taxi drivers, hairdressers, bartenders, the list goes on. In theory, one tips in response to service. Was the service exceptional? Big tip. Was the service terrible? Small tip. It’s arguable, however, that leaving no tip at all is flat out cruel. Certainly in restaurants where people earn less than $3/hour, withholding the tip is brutal.

My experience with GrubHub

I read about DoorDash taking tips from drivers while I still lived in the UK. And was not just them Instacart, too. So I was sceptical of GrubHub. I ordered about $60 of oriental food on Saturday night. I had $12 in cash waiting by my front door. I put $0 as a tip on the GrubHub order. In “special delivery” instructions I wrote “Don’t worry: tip is in cash”.

Anyone who has done a lot of GrubHub ordering probably thinks this all sounds crazy. Why not just put the $12 in the app and call it a day? I cover that below. It was my first ever order of this kind since I moved back to the US. It has soured me on the whole gig economy bullshit. I was holding the tip out in cash to be 100% sure that the driver got 100% of the tip. The opposite occurred.

What Happened?

Nothing. Quite literally nothing. I called the restaurant after waiting 90 minutes. They said the driver had cancelled and no new driver had been found. The way I figure, drivers all probably looked at the app, saw $0 tip and didn’t look farther. Why bother? I also didn’t say how much tip was waiting for them. So they’d have to take the risk. It’s an interesting result and I’m going to have to try to figure out a better way of doing it.

GrubHub ignored me

They didn’t find me a driver. They didn’t call me. They didn’t text me. When they finally cancelled my order like 90 minutes after I placed it, they just sent a single text. Imagine that as customer service: You’ve been waiting in silence for 90 minutes and then it’s just ‘Your order has been cancelled.’ Not winning any service awards from me. I called customer service. They said that because the order had been cancelled, they couldn’t see very much information and couldn’t help me with it. So there we are. They just shrugged.

So Why Do it This Way?

What is tipping? What is this “tip” in GrubHub? It is aspirational. Apparently it’s more like bidding for your driver. It’s not a response to service. At the time the money leaves my bank account, my driver hasn’t even been selected yet. I’m not tipping MY driver, I’m hoping that a good driver will be found, good service will be provided, and that I will be happy in the end at the level that is represented by the “tip” I proactively pay.

Think about this: when I reach my destination in a taxi or I finish my meal in a restaurant, I know who I’m tipping and why. With GrubHub and the other bullshit gig economies, I don’t know who I’m dealing with. I don’t know what kind of service I’m about to get, and I have very little control over the situation. If my food shows up cold because the driver gets lost, or they forget some expected but non-essential thing like chopsticks, extra sauce, etc., the tip is already paid. Mistakes are compounded and become my problem twice over: In addition to having a crappy delivery experience, I also get to go back to the app or the company or whatever, and try to get some money back. In a normal world, I could just reduce the tip a small amount for a small goof.

So what GrubHub calls a “tip” isn’t a “tip” by any conventional definition of tipping. At the time I’m paying it, I don’t know who I’m tipping or why.

Gig Economy Deliveries are like eBay for Couriers

GrubHub and apps like them should refer to the “tip” as a customer delivery incentive. And let’s face it: people who are willing to pay a higher delivery fee are going to get their food delivered faster and with greater care than people who pay minimal delivery fees. If I offer a $5 fee on a $50 order (10%), I will get prioritised lower than someone who pays $10 (20%) for a $50 order.

Gig Deliveries are not Free Market Capitalism

They’re Literally The Opposite

If you look at eBay, you truly have a marketplace where arbitrary sellers connect with arbitrary buyers and all the market forces you expect are in play. Sellers are free to price their goods at whatever price the market will bear. Buyers are free to pay whatever price sellers will accept. eBay takes a cut of each transaction for its efforts to play matchmaker.

With DoorDash, Instacart, GrubHub, etc. the driver does not set their price. They deliver at the offered price, or they don’t deliver. As a buyer of delivery services I can’t pick my seller. If there are drivers willing to do my delivery for 10% instead of 20%, I will never know. I put my offer out there already paid. By the time my order enters the market, it’s final. I can’t adjust it in response to market dynamics (e.g., increase my offered fee when I see I’m not getting delivery offers) Likewise, drivers can’t adjust their fees in response to demand. Like “I’ll deliver on Sunday morning, but I charge an extra 5% to do that”. Unlike eBay, these gig economy things are artificial markets under absolute control of their market making companies. We don’t know what the true value of delivery is because it’s not a free market allowing innovation.

Various Gig Bullshits

The delivery companies would tell you that they’re just connecting independent sellers of services (drivers, shoppers, etc.) with independent buyers of services (food consumers, grocery consumers, etc.). the idea that this is just free market capitalism is plain bullshit. People who don’t like regulated markets for taxis should not like regulated markets for gig economies. At least taxi pricing and regulations are public and debated openly. Gig economy companies are opaque and not open to any scrutiny, especially by the consumer paying for the service. Here’s some ways they’re bullshit.

As a Driver

If I’m a driver/courier for one of these apps, the “rating” system exists purely as punishment. What’s the fee you earn from passengers when you have 1000 5-star ratings? You earn the same fee as someone who has 1000 3-star ratings. You might get prioritised higher in the queue and be more likely to get work, but there’s no premium. There’s no benefit. Drivers should be able to groom that reputation and monetise it. We should not have 5-stars be zero and everything less than 5 stars is less than baseline. If I have a delivery or a drive with a 5-star driver, it should be more valuable than a delivery/drive with a 3-star driver and I should pay more (and the driver should receive more). If a customer insisted, for example, on only 5-star drivers, they should pay a higher fee, and the overwhelming majority of that fee should go to the driver who has managed to maintain that 5-star rating.

Drivers should be allowed to tack on their own fee. What if, for example, you had a stand-up comic who was willing to drive people from point A to point B, and do some comedy on the way? What if they wanted to charge an extra $10 cover charge for it and have a minimum distance of 15 miles so they had enough time to do their thing? It’s just a thought, but it’s about making drivers truly empowered to sell on a marketplace. What can they do to stand out? What about drivers who wanted to charge in another way? $20/hour no matter how far we go or how much time I wait? What about drivers in exotic cars? Or a driver who wears a top hat and speaks with a plumby English accent and speaks to you in the third person? Drivers should be able to stick on an extra fee for their time. If it’s a truly free market, then buyers will reject things they don’t want and will instead buy what they do want.

What about drivers rating passengers/buyers? And then allow them to be selective and only accept 5-star passengers?

As a Buyer

As a buyer of services, I should be able to pay higher prices for better services. What if my grocery delivery person has a cooler to keep frozen stuff cold? I could pay more for that so that my ice cream is not soupy. Or if I want to hijack the queue and make sure I’m done first, I could pay a premium. What if I want my driver to speak a certain language? Or maybe I want them to go to the cheese counter and buy a specific cheese? I would need to pay extra for that.

I should also be able to choose lower qualities of service and save a bit of money. What if by waiting an extra hour, I could get a local shopper who lives in my neighbourhood, thereby minimising waste? I don’t, as a rule, get to pick the seller who sells services to me. In any normal market I would.

My Takeaway

At the end of the day, I was considering paying a $12 delivery fee to get food from a takeaway joint a mere 5.5 miles from my house. If I had placed the order, waited 5 minutes, and then hopped in my car, I probably would have arrived just as it was ready.

In the UK, tons and tons of takeaway shops do delivery. They only do it in a hyperlocal area (just a couple miles) and they charge super small fees most of the time (£5 to free). You don’t tip the delivery driver because they are paid a proper wage (they’re probably an employee of the restaurant). It’s a much simpler transaction with much less ambiguity and no shadowy, black-box market maker tampering with prices and squashing innovation (except innovations where the market maker can also profit).

Saving 20 minutes is not worth $12 to me. And I will probably not do much GrubHub in the future. I have not yet used DoorDash nor Instacart and I can’t imagine doing so. I don’t do business with Uber or Uber Eats because it was so clear for so long that Uber is a bad company.

P.S.

An interesting postscript on this. I finished this blog post from Denver International Airport. When I went to have dinner, I found a Qdoba restaurant. Absolutely ordinary fast food. And when I went to pay, it prompted me to pay a tip. The credit card machine made me choose “Other…” and then “No Tip”. This is getting out of hand.

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