The economics of prostitution

Economists hit Chicago street corners and start crunching numbers.

By Tracy Clark-Flory
January 19, 2008 6:00AM (UTC)
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Ever wish that economists would spend more time considering the financial side of more titillating topics -- say, prostitution? If you have, you're in luck: Steven Levitt of "Freakonomics" fame recently presented preliminary findings on a study on the very topic and the Economist has the goods. As it turns out, the sex industry functions a lot like any other industry.

The study, which covered 2,200 sexual transactions throughout three Chicago areas, found that prostitutes have pricing strategies familiar to any business owner: For instance, their fees fluctuate depending on the requested service. The Economist also notes, "Clients are charged according to their perceived ability to pay." And racial stereotypes play large role -- black clients are most often given a price but white customers are asked to bid. Prostitutes also tend to charge more for riskier acts like unprotected sex -- but, according to the Economist, "the premium charged for forgoing a condom is much smaller than found in other studies."


The study also found that prostitutes with pimps work less and are paid more. Pimps tend to pay "efficiency wages," meaning they pay above the going rate to retain the most desirable workers. Of course, if that's the case, "efficiency wages" might be available to only the most in-demand workers. Levitt reports that some sex workers actually asked that he introduce them to local pimps -- in another world, that would be considered networking.

At $25-$30 per hour, prostitutes make approximately four times what they likely would outside of the sex industry. Of course, that doesn't take into consideration on-the-job risks like contracting an STD (condoms were used in only a quarter of dealings) or being assaulted; researchers estimate that sex workers are assaulted an average of once a month. There's also the threat of being arrested, but according to the Economist, "Prostitutes are more likely to have sex with a police officer than to be arrested by one."

Tracy Clark-Flory

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