Say U.S. Steel could learn a thing or two from prostitutes
January 23, 2008
Economist magazine reports that economists gathering at the annual meeting of the American Economic Association in New Orleans last week, held a session devoted to the market for paid sex. Speakers said that in many respects, the paid-sex industry is much like any other business. Pricing strategies are similar to other industries and despite evidence that the sex trade carries a lot of risk, so does finance as evidenced by the current U.S. mortgage debacle. The sex trade, like other industries, has to deal with practices that have poor or a lack of regulation, and in some countries certain business activities are even illegal.
“From an employment perspective, prostitution is a pretty good job with flexible hours and good pay,” said economist and field researcher Steven Levitt, author of the book ‘Frekonomics, One Guys Attempt to do Everything’. “Earnings are high compared with other jobs. Sex workers receive $25-30 per hour, roughly four times what they could expect outside of prostitution. Fees vary with the service provided and prostitutes maximize returns by segmenting the market. Clients are charged according to their perceived ability to pay with white customers paying more than black ones. When negotiating prices, prostitutes will usually make an offer to black clients, but will solicit a bid from a white client. It’s supply, demand and market segmentation. You could build a case study on this and apply it to U.S. Steel or Countrywide Financial.”
Not everyone likes the idea of using the illegal U.S. sex trade as a basis for developing business plans. “I worried about the inability of economists to think clearly about practical things long before this came out,” said Smarmy Oatmeal, a short greasy guy who conducts questionable business activities involving grain based products. “This idea that we can use prostitution as a viable business format on which to model future industries is kind of ‘out there’. And I’ve been ‘out there’. It’s safer in here.”
The annual meeting of the American Economic Association (AEA) this month was part of a huge gathering of social scientists sprawled across New Orleans. The AEA is the oldest professional organization in the field of economics. Each January AEA holds a three-day meeting to present papers on general economic subjects. The star attraction this year was Steven Levitt, an economics professor at the University of Chicago. Mr Levitt presented preliminary findings from a study conducted with Sudhir Venkatesh, a sociologist at Columbia University. Their research on the economics of street prostitution combined official arrest records with data on 2,200 “tricks” (transactions), collected by Mr Venkatesh in co-operation with sex workers in three Chicago districts. One controversial finding is that prostitutes do better with pimps—they work fewer hours and are less likely to be arrested by the police or preyed on by gang members.
“I run my business like anybody else’s, except mine is more profitable,” said William Jefferson Clinton, a New Orleans pimp using an assumed name. “You don’t want to over-work your employees, but you do want good self starters who are motivated to build business and avoid being arrested. That’s the same thing I looked for when I worked at Arthur Anderson.”
In related news, Bank of America is planning to buy struggling mortgage lender Countrywide Financial Corp. and plans to appoint Hollywood Madam Heidi Fleiss as CEO to get things turned around.
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