Steven Levitt
along with Stephen Dubner wrote a book Freakonomics
that came out in print in 2005. This was a bestseller and in some ways
revolutionized writing books on economics. While there were similar books of
the genre before, it was for the first time a book on economics written in
popular and layman’s language was published. It was positioned as something
that explores the hidden side of economics in everything. In fact Steven Levitt
sought to describe himself as rogue economist who ventures into areas where
others haven’t. They have come with some more books in the genre. It is not to
delve into the merits or otherwise of the book which necessitates separate
engagement.
Yet, what would
be of interest is the examination of the one of the interesting propositions
they have put forth in the book. In their contention, which they expand in the
book, in theory, a prostitute will earn more than an architect. This looks
outrageous at the first glance but they offer theoretical explanation that
seems to justify the same. It is this proposition that the post will seek to examine
at some length and holds the model as extremely limited. Their proposition
rests on the determinants of wages. Let us examine their propositions on wage
determinants first.
Their first
proposition is wages are inversely proportional to the number of people willing
and able to do a job. Implied is as the number of people who are willing and
able to particular job increase, the wages start declining. The job is no
longer attractive in terms of the wages it offers. Secondly, wages are directly
proportional to the specialised skill sets a job necessitates. The more
specialised a job is, the skills required to execute the job increase and thus
the wages too. The third factor is unpleasantness of the job. If the job
entails certain unpleasantness in course of working or skills essential, people
would be reluctant to do the job and thus need higher wages as incentives to
spur the people to perform the job. Finally, it is the relative demand patterns
that determine the wages. If there is scarcity of demand for a specific task,
the wages obviously would be low.
Therefore, in
their contention, the prostitute must earn more than the architect given these
determinants of jobs. They venture with the following explanation. The architect
prima facie appears better skilled and better educated. Of course the word ‘better’
refers to as usually understood. In their view, given hardly any girl would dream
of being a prostitute as compared to an architect, obviously the supply of
prostitutes is low and thus higher wages. Skills might not appear to be
specialized but they view the context as highly specific relative to an
architect. They unsurprisingly point out prostitution is unpleasant and
forbidding. There is a likelihood of violence. The opportunity cost of pursuing
prostitution is a loss of stable family life. In a lighter vein, they tend to
dismiss demand patterns as an architect likely needing a prostitute more than
she needing an architect. It must be noted that while they refer to female
prostitutes, the same principles must apply to male prostitutes as well. Yet
the empirical evidence hardly supports this contention.
An average architect is well off both in terms
of wages and respect in the society as compared to an average prostitute. Leave
alone respect, an average prostitute must be struggling to gain two square
meals every day. This is in apart to the violence, unstable family life, risk
of imprisonment, possibility of being driven out of their homes thus
instability in accommodation and shelter. So, therefore, if the determinants of
wages are correct, then one must wonder the reasons for the contrary observed
in practice. The theory is not wrong just that the theories come with a rider. The
rider is called ceteris paribus. In other words, the theory assumes everything else
is constant and do not change. In an ideal world, when all other variables are
kept unchanged, this theory might work in practice. If there are variables that
are dynamic this proposition falls flat in the face. This is what has happened
with this proposition. The assertion sounds glamorous and perhaps can attract
eyeballs thus higher sales but in practice, this is far from true as one shall
see in the subsequent paragraphs.
First,
prostitution is a crime in most countries and thus any practice of the same is
bound to entail risks of imprisonment which of course theoretically should
increase the wages. Yet, the determinant of wages begins with willingness and
ability to execute a job. In an ideal world, where people enter the jobs only
on their willingness and ability. There is no coercion to perform a job. Similarly
they do not enter a job where they are not interested. Such instances do not
exist in reality. Nobody enters prostitution through a willingness to enter.
Ability might exist but willingness barring one in a million would be zero. The
reason for entry lies in the availability of alternative jobs and skills for
alternative jobs and the wages for those alternative jobs.
These girls have
hardly any opportunities in their villages or small towns and even if they
exist they are hardly sufficient to meet for two square meals. They tend to
look for alternatives which is a nearby city or maybe a metropolis. They are
either deceived by agents who promise them jobs in a major city like Mumbai or
Delhi or Bangalore and lead them and thus engage in human trafficking thus
avenue for prostitution. Alternatively, these girls might end up in big cities
in search of job. Since there are hardly anyone known to them, they are
susceptible to be poached by those looking to hire for flesh trade. Thus the
situation of joblessness with commitments make these girls unwittingly land up
in flesh trade. Moreover, given they are virtually locked in, thus a tool for
exploitation, there wages are likely to be very low. They cannot complain given
their predicament and the job itself being violating of law. The exploitation
that happens is responsible for the jobs. Therefore, determinants of wages goes
beyond to availability of alternative jobs and the job lock-in and the legality
or illegality of the job.
There might be
odd cases girls venturing into prostitution to earn some extra money but those
cases too can be easily explained by these added determinants. Thus while
theory might point out to some conclusion, the reality often points to a
different conclusion. Thus wage determinants as elucidated by theory might work
in jobs which offer dignity in comparable terms but not to those wherein
dignity and other facts do not offer suitable comparison. Thus Levitt’s law of
prostitutes earning more than an architect falls flat in the face.
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