One afternoon not long ago, a 29-year-old woman named LaSheena sat on the hood
of an SUV outside a housing project on the South Side of Chicago. She had a
beaten-down look in her eyes, but otherwise seemed youthful, her pretty face
framed by straightened hair.
LaSheena was talking about how she earns her living. She described four main
streams of income: “boosting”, “roosting”, cutting hair and turning tricks.
“Boosting”, she explained, is shoplifting and selling the swag. “Roosting”
means serving as a lookout for the local street gang that sells drugs.
Which job is the worst of the four? “Turning tricks,” she says, with no
hesitation.
Why? “’Cause I don’t really like men. I guess it bothers me mentally.”
And what if prostitution paid twice as much? “Would I do it more?” she asks.
“Yeah!”
In a chic neighbourhood of Chicago, just a few miles from where street
prostitutes like LaSheena work, lives someone who makes more money than she
ever thought possible. Her name is Allie, and she is also a prostitute.
She has found, however, that she doesn’t have to work more to earn more. In
fact, the less she works, the more she earns. How so?
Throughout history, it has invariably been easier to be male than female. Yes,
this is an overgeneralisation and yes, there are exceptions, but by any
important measure, women have had it rougher than men. Even though men
handled most of the warfare, hunting and brute-force labour, women had a
shorter life expectancy.
Women have finally overtaken men in life expectancy, thanks mainly to medical
improvements surrounding childbirth; and, especially in the world’s
developed nations, women’s lives have improved dramatically. There is no
comparing the prospects of a girl in 21st-century America or Britain or
Japan with her counterpart from a century or two ago. In any arena you look
— education, legal and voting rights, career opportunities and so on — it is
far better to be a woman today than at any other point in history.
And yet there is still a considerable economic price to pay for being a woman.
The economists Claudia Goldin and Lawrence Katz found that women who went to
Harvard earned less than half as much as the average Harvard man. Even when
the analysis included only full-time employees and was controlled for other
variables, Goldin and Katz found that the Harvard women still earned about
30% less.
There is one labour market women have always dominated: prostitution. Its
business model is built upon a simple premise. Since time immemorial and all
over the world, men have wanted more sex than they could get for free. So
what inevitably emerges is a supply of women who, for the right price, are
willing to satisfy this demand. But what is the right price?
Sudhir Venkatesh, a sociologist at Columbia University in New York, spent his
graduate school years in Chicago, embedding himself with a street gang that
practically ran a South Side neighbourhood. Along the way, he became an
authority on the neighbourhood’s underground economy, and began collecting
data on the local prostitutes.
Knowing that traditional survey methods don’t necessarily produce reliable
results for a sensitive topic like prostitution, Venkatesh 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 them 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.
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
drugs accepted in lieu of cash.
Their income of roughly $18,000 a year is next to nothing compared with what
even low-rent prostitutes in Chicago earned 100 years ago. A woman working
in a “dollar house” took home the equivalent of about $76,000 today
annually, while prostitutes at the Everleigh Club, the city’s top brothel,
could earn the equivalent of about $430,000.
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 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.
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% of American men born between 1933 and
1942 had their first sexual intercourse with a prostitute.
Now imagine that same young man 20 years later. The shift in sexual mores has
given him a much greater supply of unpaid sex. In his generation, only 5% of
men lose their virginity to a prostitute.
It’s not that he and his friends are saving themselves for marriage. More than
70% of the men in his generation have sex before they marry, compared with
just 33% 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 political
lobbyists to fight against the encroachment of premarital sex. They would
have pushed to have premarital sex criminalised or, at the very least,
heavily taxed.
Alas, the prostitution industry 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.
Now let’s see how Allie makes so much more for doing so much less.
She grew up in a large and largely dysfunctional family in Texas and left home
to join the military, where she trained in electronics. When she rejoined
the civilian world seven years later, she took a job in computer programming
with one of the world’s largest corporations and married a mortgage broker.
Her life was a success, but it was also — well, boring.
She got divorced (the couple had no children) and remarried, but this marriage
also failed. Her career as a computer programmer wasn’t going much better.
Allie was smart, capable, technically sophisticated, and she also happened to
be physically attractive, a curvaceous and friendly blonde whose attributes
were always well appreciated in her corporate setting. But she just didn’t
like working all that hard.
So she became an entrepreneur, launching a one-woman business that enabled her
to work just 10 or 15 hours a week and earn five times her old salary.
She fell into the profession by accident, or at least for a lark. Her family
was devout Southern Baptist, and Allie had grown up “very strait-laced”,
she says. But as a young divorcée, she started visiting online dating sites
— she liked men, and she liked sex — and just for fun listed “escort” on her
profile.
“I mean, it was so instantaneous,” she recalls. “I just thought I’d put it up
and see what happens.”
Her computer was instantly flooded with replies. “I started hitting minimise,
minimise, minimise, just so I could keep up!”
She arranged to meet a man at two o’clock on a weekday afternoon at a hotel,
in the southwest corner of its car park. He’d be driving a black Mercedes.
Allie had no idea what to charge. She was thinking about $50.
He was a dentist — physically unintimidating, married and perfectly kind. Once
inside the room, Allie undressed nervously. She can no longer recall the
particulars of the sex (“It’s all a big blur by this point,” she says) but
does remember that “it was nothing really kinky or anything”.
When they were done, the man put some money on the dresser.
“You’ve never done this before, have you?” he asked.
Allie tried to fib, but it was useless.
“Okay,” he said, “this is what you need to do.” He began to lecture her. She
had to be more careful; she shouldn’t be willing to meet a stranger in a car
park; she needed to know something in advance about her clients.
“He was the perfect first date,” Allie says. “To this day, I remain grateful.”
Once he left the room, Allie counted the cash on the dresser: $200.
“I’d been giving it away for years, and so the fact that someone was going to
give me even a penny — well, that was shocking.”
She was immediately tempted to take up prostitution full-time, but she was
worried her family and friends would find out. So she eased into it, booking
mainly out-of-town liaisons. She curtailed her programming hours but even so
found the job stultifying. That’s when she decided to move to Chicago.
Yes, it was a big city, which Allie found intimidating, but unlike New York or
Los Angeles, it was civil enough to make a southern girl feel at home. She
built a website (those computer skills came in handy) and, through intensive
trial and error, determined which erotic services sites would help her
attract the right kind of client and which ones would waste her ad dollars.
(The winners were Eros.com and BigDoggie.net.) Running a one-woman operation
held several advantages, the main one being that she didn’t have to share
her revenues with anyone. In the old days, Allie probably would have worked
for someone like the Everleigh sisters, who paid their girls handsomely, but
took enough off the top to make themselves truly rich. The internet let
Allie be her own madam and accumulate the riches for herself.
Much has been said of the internet’s awesome ability to “disintermediate” — to
cut out the agent or middleman — in industries like travel, real estate,
insurance and the sale of stocks and bonds. But it is hard to think of a
market more naturally suited to disintermediation than high-end
prostitution.
The downside was that Allie had no one but herself to screen potential clients
and ensure they wouldn’t beat her up or rip her off. She hit upon a solution
that was as simple as it was smart. When a new client contacted her online,
she wouldn’t book an appointment until she had secured his real name and his
work telephone number. Then she’d call him the morning of their date,
ostensibly just to say how excited she was to meet him. But the call also
acknowledged that she could reach him at will and, if something were to go
wrong, she could storm his office.
“Nobody wants to see the ‘crazy ho’ routine,” she says with a smile.
To date, Allie has resorted to this tactic only once, after a client paid her
in counterfeit cash. When Allie visited his office, he promptly located some
real money.
She saw clients in her apartment, mainly during the day. Most of them were
middle-aged white men, 80% of whom were married, and they found it easier to
slip off during work hours than explain an evening absence.
Allie loved having her evenings free to read, go to the movies, or just relax.
She set her fee at $300 an hour — that’s what most other women of her
calibre seemed to be charging — with a few discount options: $500 for two
hours or $2,400 for a 12-hour sleepover.
About 60% of her appointments were for a single hour. Her bedroom — “my
office”, she calls it with a laugh — is dominated by a massive Victorian
four-poster, its carved mahogany pillars draped with an off-white silk
crepe.
One portly gentleman broke the bed not long ago. Allie didn’t blame him. “I
told him that the damn thing was already broken, and I was sorry I hadn’t
got it fixed.”
She is the kind of person who sees something good in everyone — and this, she
believes, has contributed to her entrepreneurial success. She genuinely
likes the men who come to her, and the men therefore like Allie even beyond
the fact that she will have sex with them.
Often, they bring gifts: a $100 gift certificate from Amazon; a nice bottle of
wine (she Googles the label afterwards to determine the value); and, once, a
new MacBook. The men sweet-talk her, and compliment her looks or the decor.
They treat her, in many ways, as men are expected to treat their wives but
often don’t.
Most women of Allie’s pay grade call themselves “escorts”. When Allie
discusses her friends in the business, she simply calls them “girls”. But
she isn’t fussy. “I like hooker, I like whore, I like them all,” she says.
“Come on, I know what I do, so I’m not trying to butter it up.”
Allie mentions one friend whose fee is $500 an hour. “She thinks she’s nothing
like the girls on the street giving blow jobs for $100, and I’m like, ‘Yes,
honey, you’re the same damn thing’.”
About this, Allie is probably wrong. Although she views herself as similar to
a street prostitute, she has less in common with that kind of woman than she
does with a trophy wife. Allie is essentially a trophy wife who is rented by
the hour. She isn’t really selling sex, or at least not sex alone. She sells
men the opportunity to trade in their existing wives for a younger, more
sexually adventurous version — without the trouble and long-term expense of
actually having to go through with it.
For an hour or two, she represents the ideal wife: beautiful, attentive,
smart, laughing at your jokes and satisfying your lust. She is happy to see
you every time you show up at her door. Your favourite music is already
playing and your favourite drink is on ice. She will never ask you to take
out the rubbish.
Allie says she is “a little more liberal” than some prostitutes when it comes
to satisfying a client’s unusual request. There was, for instance, the
fellow back in Texas who still flew her in regularly and asked her to
incorporate some devices he kept in a briefcase in a session most people
wouldn’t even recognise as sex per se. But she categorically insists that
her clients wear a condom.
What if a client offered her $1m to have sex without a condom? Allie pauses to
consider this question. Then, exhibiting a keen understanding of what
economists call adverse selection, she declares that she still wouldn’t do
it — because any client crazy enough to offer $1m for a single round of
unprotected sex must be so crazy that he should be avoided at all costs.
But we still haven’t explained how she came to earn more by doing less.
When she started out in Chicago, at $300 an hour, the demand was nearly
overwhelming. She took on as many clients as she could physically
accommodate, working roughly 30 hours a week. She kept that up for a while,
but once she paid off her car and built up some cash reserves, she scaled
back to 15 hours a week. Even so, she began to wonder if one hour of her
time was more valuable to her than another $300. As it was, a 15-hour
workload generated more than $200,000 a year in cash.
Eventually she raised her fee to $350 an hour. She expected demand to fall,
but it didn’t. So a few months later, she raised it to $400. Again, there
was no discernible drop-off in demand. Allie was a bit peeved with herself.
Plainly she had been charging too little the whole time.
But at least she was able to strategically exploit her fee change by engaging
in what economists call “price discrimination”. She charged her favourite
clients the old rate but told her less favoured clients that an hour now
cost $400.
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. (If Allie’s clients balked, she had a handy
excuse to cut them loose. There were always more where they came from.)
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 travellers know this
all too well, because they routinely pay three times more for a last-minute
airline ticket than the holidaymaker in the next seat.
It wasn’t long before Allie raised her fee again to $450 an hour, and a few
months later to $500. In the space of a couple of years, Allie had increased
her price by 67%, and yet she saw practically no decrease in demand.
Her price hikes revealed another surprise: the more she charged, the less
actual sex she was having. At $300 an hour, she had a string of one-hour
appointments with each man wanting to get in as much action as he could. But
charging $500 an hour, she was often wined and dined — “a four-hour dinner
date that ends with a 20-minute sexual encounter”, she says, “even though I
was the same girl, dressed the same, and had the same conversations as when
I charged $300”.
She figured she may have just been profiting from a strong economy. This was
during 2006 and 2007, which were go-go years for many of the bankers,
lawyers and property developers she saw. But Allie had found that most
people who bought her services were, in the language of economics, price
insensitive. Demand for sex seemed relatively uncoupled from the broader
economy.
Street prostitutes like LaSheena might have the worst job in America. But for
elite prostitutes like Allie, the circumstances are completely different:
high wages, flexible hours and relatively little risk of violence or arrest.
So the real puzzle isn’t why someone like Allie becomes a prostitute, but
rather why more women don’t choose this career.
Certainly, prostitution isn’t for every woman. You have to like sex enough,
and be willing to make some sacrifices, like not having a husband (unless he
is very understanding, or very greedy). Still, these negatives just might
not seem that important when the wage is $500 an hour. Indeed, when Allie
confided to one longtime friend that she had become a prostitute and
described her new life, it was only a few weeks before the friend joined
Allie in the business.
Allie has never had any trouble with the police, and doesn’t expect to. The
truth is that she would be distraught if prostitution were legalised,
because her stratospherically high wage stems from the fact that the service
she provides cannot be had legally.
Allie was a shrewd entrepreneur who kept her overheads low, maintained quality
control, learnt to price-discriminate, and understood well the market forces
of supply and demand. She also enjoyed her work.
But, all that said, Allie began looking for an exit strategy. She was in her
early thirties by now and, while still attractive, she understood that her
commodity was perishable. She felt sorry for older prostitutes who, like
ageing athletes, didn’t know when to quit.
She had also grown tired of living a secret life. Her family and friends
didn’t know she was a prostitute, and the constant deception wore her out.
The only people with whom she could be unguarded were other girls in the
business, and they weren’t her closest friends.
She had saved money but not enough to retire. So she began casting about for
her next career. She got her real-estate licence. The housing boom was in
full swing, and it seemed pretty simple to make the transition out of her
old job and into the new, since both allowed a flexible schedule. But too
many other people had the same idea. And Allie was aghast when she realised
she’d have to give half of her commission to the agency that employed her.
That was a steeper cut than any pimp would dare take!
Finally Allie realised what she really wanted to do: go back to college. She
would build on everything she’d learnt by running her own business and, if
all went well, apply this newfound knowledge to some profession that would
pay an insanely high wage without relying on her own physical labour.
Her chosen field of study? Economics, of course.
Allie is not her real name, but all other facts about her are true. Over the
past few years, we have both spent a considerable amount of time with her
(all fully clothed), holding extensive interviews, reviewing her ledgers and
attending the occasional guest lecture she delivered at the University of
Chicago for Steve Levitt’s class, The Economics of Crime.
Several students said this was the best lecture they had in all their years at
the university, which is both a firm testament to Allie’s insights and a
brutal indictment of Levitt and the other professors.
© Steven D Levitt and Stephen J Dubner 2009 Extracted from
Superfreakonomics: Global Cooling, Patriotic Prostitutes and Why Suicide
Bombers Should Buy Life Insurance by Steven D Levitt and Stephen J Dubner,
to be published by Allen Lane on October 20 at £20. Copies can be ordered
for £18, including postage, from The Sunday Times BooksFirst on 0845 271
2135 Steven Levitt and Stephen Dubner will be at the Peacock theatre,
London, on Monday, November 9, at 6.30pm to talk about their book
Monkeys wise up and get the hang of money
When primates were taught to use currency, an age-old deal took place
Long ago Adam Smith, the founder of classical economics, observed: “Nobody
ever saw a dog make a fair and deliberate exchange of one bone for another
with another dog. Nobody ever saw one animal by its gestures and natural
cries signify to another, this is mine, that yours; I am willing to give
this for that.”
Smith was certain that humankind alone had a knack for monetary exchange. But
was he right? Keith Chen, an associate professor of economics at Yale, asked
himself: what would happen if I could teach a bunch of monkeys to use money?
His monkey of choice was the capuchin, which, he says, “has a small brain” and
is “pretty much focused on food and sex”. Chen went to work with seven
capuchins, which, in the tradition of monkey labs everywhere, were given
names — in this case derived from characters in James Bond films. Felix,
named after the CIA agent Felix Leiter, was Chen’s favourite.
The monkeys lived together in a large, open cage with a testing chamber at the
end. For currency, Chen settled on a 1in silver disc with a hole in the
middle.
The first step was to teach the monkeys that the coins had value. If you give
a capuchin a coin, he will sniff it and, after determining he can’t eat it
(or have sex with it), he’ll toss it aside. So Chen and his colleagues gave
the monkey a coin and then showed a treat. Whenever the monkey gave the coin
back to the researcher, it got the treat. It took many months, but the
monkeys eventually learnt that the coins could buy the treats.
Chen now introduced price shocks to the monkeys’ economy. Let’s say Felix’s
favourite food was Jell-O, and he was accustomed to getting three cubes of
it for one coin. How would he respond if one coin suddenly bought just two
cubes?
To Chen’s surprise, Felix and the others responded rationally. When the price
of a given food rose, the monkeys bought less of it, and when the price
fell, they bought more. The most basic law of economics — that the demand
curve slopes downward — held for monkeys as well as humans.
Other experiments confirmed the parallels between human beings and these
monkeys. And then, as if Chen needed any further evidence, the strangest
thing happened in the lab.
Felix scurried into the testing chamber, gathered up all the coins that had
been placed there, flung them back into the communal cage and dashed after
them — a bank heist followed by a jailbreak.
There was chaos in the big cage, with 12 coins on the floor and seven monkeys
going after them. When Chen and the other researchers went inside to get the
coins, the monkeys wouldn’t give them up. After all, they had learnt that
the coins had value. So the humans resorted to bribing the capuchins with
treats. This taught the monkeys another valuable lesson: crime pays.
Out of the corner of his eye, Chen saw something remarkable. One monkey,
rather than handing his coin over to the humans for a grape or a slice of
apple, gave it to a female monkey. Chen had done earlier research in which
monkeys were found to be altruistic. Had he just witnessed an unprompted act
of monkey altruism?
Then — bam! — the two capuchins were having sex. As soon as the sex was over —
it lasted about eight seconds; they’re monkeys, after all — the female
brought the coin over to Chen to purchase some grapes.
What he had seen wasn’t altruism but the first instance of monkey prostitution
in the recorded history of science.
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