Why is prostitution so well paid?

The oldest trade usually pays well, even where it is legal. Why so? Prostitution is low-skilled, labor intensive and female, all attributes that are usually associated with low pay. Lena Edlund and Evelyn Korn have proposed that the high pay can be justified by that fact that prostitute give up their fertility. This is based on the taboos that prevent the marriage of prostitutes. But this is theory.

Raj Arunachalam and Manisha Shah provide an empirical test of this theory. They use sex worker data from Ecuador and Mexico. Prostitutes are indeed better paid, especially when young, when they are also more likely to be married. Even worse for the theory, the premium is higher for male sex workers.

The authors hypothesize that the true explanation for the higher pay is risk. Sex workers face much higher risks of catching sexually transmitted diseases. Some proof of this is that sex workers earn less when using a condom, as shown by Paul Gertler, Manisha Shah and Stefano Bertozzi. But in the Ecuador sample studied here, this can only explain a quarter of the 30% premium.