Digital disruption in the world’s oldest profession

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The cover feature of this week’s Economist – bearing the headline “More bang for your buck” – explores how new technology is shaking up the world’s oldest profession.

Noting how specialist websites and apps are allowing “information to flow between buyer and seller”, the magazine has conducted an economic analysis of what this “wealth of data” reveals.

The Economist Intelligence Unit has crunched data on prostitutes’ prices, services and personal characteristics gleaned from an [anonymous] international website which hosts 190,000 profiles of female sex workers operating from 84 cities in 12 countries:

[Prostitution] turns out to be surprisingly similar to other service industries. Prostitutes’ personal characteristics and the services they offer influence the prices they charge; niche services attract a premium; and the internet is making it easier to work flexible hours and to forgo a middleman.

So what does this reveal?

Firstly, the data show a drop of around 20 per cent in prostitutes’ average hourly rates since 2006 to $260 (this is illustrated with a chart somewhat gratuitously entitled “Going down”).

The report’s authors suggest this is due to male consumers cutting back on “luxuries” in the downturn, quoting a prostitute known as Vanessa who says even offering “discounts to whip up interest” has not improved levels of customers. Additionally, the article quotes academics who claim a flood of migrants from EU accession states has led to prices dropping across Europe.

Secondly, sex workers who offer “niche” services such as spanking can command a premium of up to $50 per hour (there is another chart on p18 to accompany this, which modesty forbids me from discussing further).

And when it comes to appearance, the highest earning prostitutes possess a combination of an athletic build, long blonde hair and a bust size of D or above (at this point, one wonders if it was really necessary to compile a report of 3,500 words to arrive at this conclusion). The Economist also appears to offer some business investment advice to any sex workers reading the article:

For those who are not naturally endowed, breast implants may make economic sense: going from flat-chested to a D-cup increases hourly rates by approximately $40, meaning that at a typical price of $3,700, surgery could pay for itself after around 90 hours.

While blondes can command an 11 per cent price premium over brunettes, the data analysis found that black prostitutes earned on average $100 less than white ones.

In an accompanying editorial, the Economist argues:

This newspaper has never found it plausible that all prostitutes are victims. That fiction is becoming harder to sustain as much of the buying and selling of sex moves online. Personal websites mean prostitutes can market themselves and build their brands. Review sites bring trustworthy customer feedback to the commercial sex trade for the first time. The shift makes it look more like a normal service industry.

Whether economists subscribe to the magazine’s views or not, the subject of prostitution is rising up the economic agenda. From next month, the UK’s Office for National Statistics has decided to count prostitution and drug dealing within its estimates of economic output – a move that will add around £10bn to UK GDP.

Its first attempt to measure illegal activity other than smuggling, when it announced the policy shift in May the ONS said including prostitution would have added £5.3bn to GDP in 2009, and illegal drugs a further £4.4bn (it is still in the process of calculating the effects in subsequent years).

The ONS breakdown reckoned that each of the UK’s estimated 60,879 prostitutes took about 25 clients a week in 2009, at an average rate of £67.16.

For readers in search of more academic titillation, my FT colleague Sarah O’Connor has already got to the bottom of what assumptions the ONS used in these calculations.