Well, at my day job I work under a union contract. This particular union contract leaves no room for individual tangible rewards from our employer -- everyone doing the same job gets paid the same, there are no individual raises and no bonuses. And I would be the first to point out that yes, for many of the people here work degrades to the lowest bare minimum of service they can do without getting written up.
However there are also plenty of other employees that regularly try and raise the bar for job performance. These people find that they get the gratitude of their fellow workers, their customers and if they have a good manager they are also awarded priority for picking schedules and projects. These employees also tend to stay for the long haul and receive longevity raises and tend to stay until their retire with pension benefits -- the slackers tend to leave angry and upset after a couple of years.
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As for how it applies to restaurants, I live in California and we have a fast food chain here called "In & Out" that can be an interesting case study. Based on friends I knew that worked there back in the 90's, they were never expected to be tipped, they were paid nearly double the minimum state wage, shift supervisors were encouraged to write up anyone that provided bad customer service and most importantly managers actually fired people that got written up. As a result, as a customer -- I knew they were paid well and the service I got there always exceeded my expectations for a fast food restaurant, and often exceeded what I would expect at a diner.
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If I walk into a restaurant, if I receive poor service, I look around and see what level of service other people are receiving. If it appears my service was worse then that received by other people, I mention it to the shift supervisor, or manager on my way out. If it appears everyone is receiving poor service, I vote with my money and never visit that establishment again. If others did the same, then those that run places with poor wages and low expectations will go out of business and those that pay well and have high expectations from their employees will prosper.