To be sure, an Everleigh butterfly’s wages were off the charts. But why did even a typical Chicago prostitute one hundred years ago earn so much money?
The best answer is that wages are determined in large part by the laws of supply and demand, which are often more powerful than laws made by legislators.
In the United States especially, politics and economics don’t mix well. Politicians have all sorts of reasons to pass all sorts of laws that, as well-meaning as they may be, fail to account for the way real people respond to real-world incentives.
When prostitution was criminalized in the United States, most of the policing energy was directed at the prostitutes rather than their customers. This is pretty typical. As with other illicit markets—think about drug dealing or black-market guns—most governments prefer to punish the people who are supplying the goods and services rather than the people who are consuming them.
But when you lock up a supplier, a scarcity is created that inevitably drives the price higher, and that entices more suppliers to enter the market. The U.S. “war on drugs” has been relatively ineffective precisely because it focuses on sellers and not buyers. While drug buyers obviously outnumber drug sellers, more than 90 percent of all prison time for drug convictions is served by dealers.
Why doesn’t the public support punishing users? It may seem unfair to punish the little guy, the user, when he can’t help himself from partaking in vice. The suppliers, meanwhile, are much easier to demonize.
But if a government really wanted to crack down on illicit goods and services, it would go after the people who demand them. If, for instance, men convicted of hiring a prostitute were sentenced to castration, the market would contract in a hurry.
In Chicago some one hundred years ago, the risk of punishment fell almost entirely on the prostitute. Besides the constant threat of arrest, there was also the deep social stigma of prostitution. Perhaps the greatest penalty was that a woman who worked as a prostitute would never be able to find a suitable husband. Combine these factors and you can see that a prostitute’s wages had to be high to entice enough women to satisfy the strong demand.
The biggest money, of course, was taken home by the women at the top of the prostitution pyramid. By the time the Everleigh Club was shut down—the Chicago Vice Commission finally got its way—Ada and Minna Everleigh had accumulated, in today’s currency, about $22 million.
The mansion that housed the Everleigh Club is long gone. So is the entire Levee district. The very street grid where the Everleigh stood was wiped away in the 1960s, replaced by a high-rise housing project.
But this is still the South Side of Chicago and prostitutes still work there—like LaSheena, in the black-and-red tracksuit—although you can be pretty sure they won’t be quoting you any Greek poetry.
LaSheena is one of the many street prostitutes Sudhir Venkatesh has gotten to know lately. Venkatesh, a sociologist at Columbia University in New York, spent his grad-school years in Chicago and still returns there regularly for research.
When he first arrived, he was a naïve, sheltered, Grateful Dead–loving kid who’d grown up in laid-back California, eager to take the temperature of an intense town where race—particularly black and white—played out with great zeal. Being neither black nor white (he was born in India) worked in Venkatesh’s favor, letting him slip behind the battle lines of both academia (which was overwhelmingly white) and the South Side ghettos (which were overwhelmingly black). Before long, he had embedded himself with a street gang that practically ran the neighborhood and made most of its money by selling crack cocaine. (Yes, it was Venkatesh’s research that figured prominently in the Freakonomics chapter about drug dealers, and yes, we are back now for a second helping.) Along the way, he became an authority on the neighborhood’s underground economy, and when he was done with the drug dealers he moved on to the prostitutes.
But an interview or two with a woman like LaSheena can reveal only so much. Anyone who wants to really understand the prostitution market needs to accumulate some real data.
That’s easier said than done. Because of the illicit nature of the activity, standard data sources (think of census forms or tax rolls) are no help. Even when prostitutes have been surveyed directly in previous studies, the interviews are often conducted long after the fact and by the kind of agency (a drug-rehab center, for instance, or a church shelter) that doesn’t necessarily elicit impartial results.
Moreover, earlier research has shown that when people are surveyed about stigmatizing behavior, they either downplay or exaggerate their participation, depending on what’s at stake or who is asking.
Consider the Mexican welfare program Oportunidades. To get aid, applicants have to itemize their personal possessions and household goods. Once an applicant is accepted, a caseworker visits his home and learns whether the applicant was telling the truth.
César Martinelli and Susan W. Parker, two economists who analyzed the data from more than 100,000 Oportunidades clients, found that applicants routinely underreported certain items, including cars, trucks, video recorders, satellite TVs, and washing machines. This shouldn’t surprise anyone. People hoping to get welfare benefits have an incentive to make it sound like they are poorer than they truly are. But as Martinelli and Parker discovered, applicants overreported other items: indoor plumbing, running water, a gas stove, and a concrete floor. Why on earth would welfare applicants say they had these essentials when they didn’t?
Martinelli and Parker attribute it to embarrassment. Even people who are poor enough to need welfare apparently don’t want to admit to a welfare clerk that they have a dirt floor or live without a toilet.
Venkatesh, knowing that traditional survey methods don’t necessarily produce reliable results for a sensitive topic like prostitution, tried something different: real-time, on-the-spot data collection. He hired trackers to stand on street corners or sit in brothels with the prostitutes, directly observing some facets of their transactions and gathering more intimate details from the prostitutes as soon as the customers were gone.
Most of the trackers were former prostitutes—an important credential because such women were more likely to get honest responses. Venkatesh also paid the prostitutes for participating in the study. If they were willing to have sex for money, he reasoned, surely they’d be willing to talk about having sex for money. And they were. Over the course of nearly two years, Venkatesh accumulated data on roughly 160 prostitutes in three separate South Side neighborhoods, logging more than 2,200 sexual transactions.
The tracking sheets recorded a considerable variety of data, including:
The specific sexual act performed, and the duration of the trick
Where the act took place (in a car, outdoors, or indoors)
Amount received in cash
Amount received in drugs
The customer’s race
The customer’s approximate age
The customer’s attractiveness (10 = sexy, 1 = disgusting)
Whether a condom was used
Whether the customer was new or returning
If it could be determined, whether the customer was married; employed; affiliated with a gang; from the neighborhood
Whether the prostitute stole from the customer
Whether the customer gave the prostitute any trouble, violent or otherwise
Whether the sex act was paid for, or was a “freebie”
So what can these data tell us?
Let’s start with wages. It turns out that the typical street prostitute in Chicago works 13 hours a week, performing 10 sex acts during that period, and earns an hourly wage of approximately $27. So her weekly take-home pay is roughly $350. This includes an average of $20 that a prostitute steals from her customers and acknowledges that some prostitutes accept drugs in lieu of cash—usually crack cocaine or heroin, and usually at a discount. Of all the women in Venkatesh’s study, 83 percent were drug addicts.
Like LaSheena, many of these women t
ook on other, non-prostitution work, which Venkatesh also tracked. Prostitution paid about four times more than those jobs. But as high as that wage premium may be, it looks pretty meager when you consider the job’s downsides. In a given year, a typical prostitute in Venkatesh’s study experienced a dozen incidents of violence. At least 3 of the 160 prostitutes who participated died during the course of the study. “Most of the violence by johns is when, for some reason, they can’t consummate or can’t get erect,” says Venkatesh. “Then he’s shamed—‘I’m too manly for you’ or ‘You’re too ugly for me!’ Then the john wants his money back, and you definitely don’t want to negotiate with a man who just lost his masculinity.”
Moreover, the women’s wage premium pales in comparison to the one enjoyed by even the low-rent prostitutes from a hundred years ago. Compared with them, women like LaSheena are working for next to nothing.
Why has the prostitute’s wage fallen so far?
Because demand has fallen dramatically. Not the demand for sex. That is still robust. But prostitution, like any industry, is vulnerable to competition.
Who poses the greatest competition to a prostitute? Simple: any woman who is willing to have sex with a man for free.
It is no secret that sexual mores have evolved substantially in recent decades. The phrase “casual sex” didn’t exist a century ago (to say nothing of “friends with benefits”). Sex outside of marriage was much harder to come by and carried significantly higher penalties than it does today.
Imagine a young man, just out of college but not ready to settle down, who wants to have some sex. In decades past, prostitution was a likely option. Although illegal, it was never hard to find, and the risk of arrest was minuscule. While relatively expensive in the short term, it provided good long-term value because it didn’t carry the potential costs of an unwanted pregnancy or a marriage commitment. At least 20 percent of American men born between 1933 and 1942 had their first sexual intercourse with a prostitute.
Now imagine that same young man twenty years later. The shift in sexual mores has given him a much greater supply of unpaid sex. In his generation, only 5 percent of men lose their virginity to a prostitute. And it’s not that he and his friends are saving themselves for marriage. More than 70 percent of the men in his generation have sex before they marry, compared with just 33 percent in the earlier generation.
So premarital sex emerged as a viable substitute for prostitution. And as the demand for paid sex decreased, so too did the wage of the people who provide it.
If prostitution were a typical industry, it might have hired lobbyists to fight against the encroachment of premarital sex. They would have pushed to have premarital sex criminalized or, at the very least, heavily taxed. When the steelmakers and sugar producers of America began to feel the heat of competition—in the form of cheaper goods from Mexico, China, or Brazil—they got the federal government to impose tariffs that protected their homegrown products.
Such protectionist tendencies are nothing new. More than 150 years ago, the French economist Frédéric Bastiat wrote “The Candlemakers’ Petition,” said to represent the interests of “the Manufacturers of Candles, Tapers, Lanterns, Candlesticks, Street Lamps, Snuffers, and Extinguishers” as well as “the Producers of Tallow, Oil, Resin, Alcohol, and Generally Everything Connected with Lighting.”
These industries, Bastiat complained, “are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price.”
Who was this dastardly foreign rival?
“None other than the sun,” wrote Bastiat. He begged the French government to pass a law forbidding all citizens to allow sunlight to enter their homes. (Yes, his petition was a satire; in economists’ circles, this is what passes for radical high jinks.)
Alas, the prostitution industry lacks a champion as passionate, even in jest, as Bastiat. And unlike the sugar and steel industries, it holds little sway in Washington’s corridors of power—despite, it should be said, its many, many connections with men of high government office. This explains why the industry’s fortunes have been so badly buffeted by the naked winds of the free market.
Prostitution is more geographically concentrated than other criminal activity: nearly half of all Chicago prostitution arrests occur in less than one-third of 1 percent of the city’s blocks. What do these blocks have in common? They are near train stations and major roads (prostitutes need to be where customers can find them) and have a lot of poor residents—although not, as is common in most poor neighborhoods, an overabundance of female-headed households.
This concentration makes it possible to take Venkatesh’s data and merge it with the Chicago Police Department’s citywide arrest data to estimate the scope of street prostitution citywide. The conclusion: in any given week, about 4,400 women are working as street prostitutes in Chicago, turning a combined 1.6 million tricks a year for 175,000 different men. That’s about the same number of prostitutes who worked in Chicago a hundred years ago. Considering that the city’s population has grown by 30 percent since then, the per-capita count of street prostitutes has fallen significantly. One thing that hasn’t changed: for the customer at least, prostitution is only barely illegal. The data show that a man who solicits a street prostitute is likely to be arrested about once for every 1,200 visits.
The prostitutes in Venkatesh’s study worked in three separate areas of the city: West Pullman, Roseland, and Washington Park. Most of these neighborhoods’ residents are African American, as are the prostitutes. West Pullman and Roseland, which adjoin each other, are working-class neighborhoods on the far South Side that used to be almost exclusively white (West Pullman was organized around the Pullman train factory). Washington Park has been a poor black neighborhood for decades. In all three areas, the race of the prostitutes’ clientele is mixed.
Monday is easily the slowest night of the week for these prostitutes. Fridays are the busiest, but on Saturday night a prostitute will typically earn about 20 percent more than on Friday.
Why isn’t the busiest night also the most profitable? Because the single greatest determinant of a prostitute’s price is the specific trick she is hired to perform. And for whatever reason, Saturday customers purchase more expensive services. Consider the four different sexual acts these prostitutes routinely performed, each with its own price tag:
It’s interesting to note that the price of oral sex has plummeted over time relative to “regular” sexual intercourse. In the days of the Everleigh Club, men paid double or triple for oral sex; now it costs less than half the price of intercourse. Why?
True, oral sex imposes a lower cost on the prostitute because it eliminates the possibility of pregnancy and lessens the risk of sexually transmitted disease. (It also offers what one public-health scholar calls “ease of exit,” whereby a prostitute can hurriedly escape the police or a threatening customer.) But oral sex always had those benefits. What accounted for the price difference in the old days?
The best answer is that oral sex carried a sort of taboo tax. At the time, it was considered a form of perversion, especially by religious-minded folks, since it satisfied the lust requirements of sex without fulfilling the reproductive requirements. The Everleigh Club was of course happy to profit from this taboo. Indeed, the club’s physician avidly endorsed oral sex because it meant higher profits for the establishment and less wear and tear on the butterflies.
But as social attitudes changed, the price fell to reflect the new reality. This shift in preferences has not been confined to prostitution. Among U.S. teenagers, oral sex is on the rise while sexual intercourse and pregnancy have fallen. Some might call it coincidence (or worse), but we call it economics at work.
The lower price for oral sex among prostitutes has been met by strong demand. Here is a breakdown of the market share of each sex act performed by the Chicago prostitutes:
Included in the “other” category are nude dancing, “just talk” (an extremely rare event, observed only a handful of times over more than two thousand transactions), and a variety of acts that are the complete opposite of “just talk,” so far out of bounds that they would tax the imagination of even the most creative reader. If nothing else, such acts suggest a prime reason that a prostitution market still thrives despite the availability of free sex: men hire prostitutes to do things a girlfriend or wife would never be willing to do. (It should also be said, however, that some of the most deviant acts in our sample actually include family members, with every conceivable combination of gender and generation.)
Prostitutes do not charge all customers the same price. Black customers, for instance, pay on average about $9 less per trick than white customers, while Hispanic customers are in the middle. Economists have a name for the practice of charging different prices for the same product: price discrimination.
In the business world, it isn’t always possible to price-discriminate. At least two conditions must be met:
Some customers must have clearly identifiable traits that place them in the willing-to-pay-more category. (As identifiable traits go, black or white skin is a pretty good one.)
The seller must be able to prevent resale of the product, thereby destroying any arbitrage opportunities. (In the case of prostitution, resale is pretty much impossible.)
If these circumstances can be met, most firms will profit from price discriminating whenever they can. Business travelers know this all too well, because they routinely pay three times more for a last-minute airline ticket than the vacationer in the next seat. Women who pay for a salon haircut know it too, since they pay twice as much as men for what is pretty much the same haircut. Or consider the online health-care catalog Dr. Leonard’s, which sells a Barber Magic hair trimmer for $12.99 and, elsewhere on its site, the Barber Magic Trim-a-Pet hair trimmer for $7.99. The two products appear to be identical—but Dr. Leonard seems to think that people will spend more to trim their own hair than their pet’s.
SuperFreakonomics Page 4
