In Hotel Babylon, a popular British television drama series spun around the happenings at an up-market hotel in London, a tabloid hack, posing as an American, checks out without leaving a tip. Tat is enough for the manager, played by Max Beesley, to uncover the deception: Americans are generous with their tips — unlike Europeans and Asians. But why is it so?
Social and cultural reasons could explain the differences. Eduardo Porter, in his book, The Price of Everything, puts on the lens of an economist to make sense of issues such as this.
Tipping by Americans is a reflection of its labour market. “In the United States, waiters earn little. As the minimum wage has risen to $7.25, for waiters it has been stuck at $2.13 since 1991, on the grounds that they can supplement it with tips.... Europeans believe such wages are unfair, and have thus imposed compulsory service charges to add to the bill instead.”
We have seen this movie before. Using an economic framework to explain the world has been popular since Steven Levitt and Stephen Dubner's Freakonomics. The genre includes Undercover Economist and Logic of Life by Tim Harford, Discover Your Inner Economist by Tyler Cowen and More Sex is Safer Sex by Steven Landsburg.
The book drew me in with the range of examples it gives and the variety of studies it draws its insights from. Even if the line of reasoning gets predictable after a few chapters, the subjects and the details make this a fascinating read.
The book has its faults. For a journalist (Porter writes for New York Times), there is little field reporting. It makes you wonder if he is guided more by a left -of-centre bias than by economics. But these are minor issues in a book that’s interesting and insightful.
The Price of Everything: The Cost of Birth, the Price of Death and the Value of Everything in Between Author: Eduardo Porter Published by: William Heinemann, London
Price: Rs. 499; Pages: 296
(This story appears in the 20 May, 2011 issue of Forbes India. To visit our Archives, click here.)