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Thursday, October 30, 2014

Does Competition Eliminate Discrimination? Evidence from the Commercial Sex Market in Singapore (1/2)

Does Competition Eliminate Discrimination? Evidence from the Commercial Sex Market in Singapore

"The canonical discrimination model in economics, Becker (1957), predicts discrimination cannot survive in a competitive equilibrium. In contrast, Diamond (1971) implies the opposite: discrimination can prevail in a competitive equilibrium even when the search cost is small. In this paper, I test these two competing theories in the highly competitive sex market of Singapore and find that discrimination persists. Moreover, sex workers engage in both statistical and taste-based discrimination, with the former being the most dominant force. They discriminate based on the client’s willingness to pay by using ethnicity as an indicator. They also practice taste-based discrimination against ethnic groups with darker skin tones and odor.

Becker argues that discrimination cannot survive in a competitive equilibrium because competitive forces will drive prejudiced participants out of market. Applied to my setting, sex workers who discriminate would lose out to other sex workers who are willing to sell their services at a lower price...

I examine equilibrium discrimination in a unique real market setting: the commercial sex market in Singapore. It is an ideal setting due to the presence of a large number of nearly identical sex workers selling homogeneous services to clients who search at negligible cost, thus forming a highly competitive market...

This study also contributes by distinguishing the sources of discrimination. During the interviews, the sex workers revealed that they price services differently based on the client’s ethnicity, which they take as a signal of the client’s willingness to pay. They tend to actively approach Caucasians, Japanese, and Koreans, which are the ethnic groups whom they believe to be wealthier. Thus, the sex workers inflate the prices quoted to these clients. On the other hand, sex workers express animus towards ethnic client groups who have darker skin tones and who are perceived to be more sexually violent (such as Indians). They report that they avoid these clients or ask for higher prices to compensate for the disutility from working with them. The former hints at statistical discrimination (Arrow, 1971; Phelps, 1972) while the latter suggests tastebased discrimination...

The largest portion of the commercial sex industry consists of illegal brothels and illegal sex workers who come mainly from China, Thailand, Vietnam and the Philippines (Agency France Press, 2008). The business follows a seasonal trend with peak months in June, September and December following Singapore’s tourism industry. Business is slowest during the Chinese New Year period when both supply and demand are low. This study presents several prominent features of the commercial sex industry in Singapore. First, the supply of sex workers is highly diversified in terms of country of origin, while domestic supply is low. Concurrently, the demand for prostitution is also diversified in the sense that clients are of different ethnic backgrounds. Second, the legal and illegal segments coexist within the flourishing underground market. Third, the illegal market consists of low-, middle-, and high-end market segments featuring sex workers of varying quality and targeting different segments of demand.

Singapore has one of the best educated populations in the world. 95 percent of its female population are literate and 63 percent of female residents have secondary or higher educational qualifications (Ministry of Statistics, Singapore, 2013). Therefore, there is less incentive for a local female to be a sex worker. Moreover, being a prostitute in the small conservative island is threatening to a woman’s reputation. Thus, the Singaporean sex industry is populated by sex workers from poor neighboring countries who travel to Singapore to sell their bodies after being attracted by the high returns. The high returns appear even more attractive due to the high income differential between Singapore and poorer neighboring countries. Furthermore, working as a sex worker away from home mitigates the risk of being judged by one’s own society. For these reasons, girls from poorer neighboring countries are willing to accept the high risks that come with being a sex worker, although it is also possible that they are not fully aware of the risks in the first place. However, it is worth noting that not all of these sex workers work permanently in Singapore. Most of them are on short-term visitor passes. They visit Singapore from time to time not only to seek lucrative earning opportunities but to pursue marriage opportunities with Singaporean men and Western males. The low domestic supply and high foreign supply is consistent with Edlund and Korn (2002) who predict that the number of the domestic sex workers will decrease as domestic income rises...

The demand for prostitution stems from both locals and expatriates of different ethnic backgrounds. Over the years, female undergraduates in Singapore have outperformed males in many professions. The existence of 300,000 white-collar male workers in Singapore who cannot find wives made headlines around 2005. Few women are willing to marry men below their education and economic status. At the same time, Singapore has a large population of expatriates... The majority of the non-PMET workers who are in the construction and manufacturing sectors are men. Bangladeshi construction workers in particular are frequent visitors to the Geylang red light district, representing a sizable demand for affordable sexual services. In addition, Singapore is a popular tourist hub. In 2011, it attracted 13.2 million tourists and generated S$22.3 billion in tourist receipts (Singapore Tourism Board, 2012). It is fairly common for tourists to visit an international destination in order to seek sexual services. According to the US ambassador Harry Thomas, 40 percent of male visits to the Philippines are for sex (Australia News Report, 2011). Thus, the influx of male tourists, to a certain extent, creates a stream of demand for prostitution in Singapore as well.

Besides the legal brothels in Geylang, there are three main segments in the illegal market. When defining the segments by the quality and price of the service, we can categorize the best-known red light areas Geylang (even-numbered lanes) as the low-end segment, the renowned Orchard Tower Bars as the mid-tier segment and the nightclubs as the high-end segment of the market. The sex workers in Geylang and Orchard Tower Bars are mostly freelancers operating with tourist passes. Many of the Geylang streetwalkers are associated with pimps who are backed by gangs. They are full-time sex workers with no other source of income. In contrast, many women working in the nightclubs are hired by the clubs as artistic performers (i.e dancers, singers and hostesses) under a legal work permit. They make money as sex workers on a part-time basis. Sex workers solicit only within their own segments. For example, a Chinese street sex worker in Geylang will not solicit in Orchard Towers. The Thai and Vietnamese girls who solicit in the bars inside of Orchard Towers will not go over to Geylang for business either. This is because they fall into the different segments based on their own characteristics and networks. Trespassing across the segments may risk their safety and earnings. Sexual services typically take place in venues like motels and hotels, as well as in cars or the client’s residence. A full-time sex worker will return to her original venue immediately after finishing with a client. Any costs, such as taxi fare and hotel room charges are usually borne by clients.

Other, more scattered forms of illegal prostitution typically operate as KTVs, massage parlors and social escort. KTVs are entertainment pubs where clients can book rooms to sing songs with friends and be entertained by friends or by the hostess. Prostitutes in the KTVs are managed by the KTV manager, and therefore have less freedom to decide work hours, prices and which customers to take. The owner of a KTV is subject to a jail sentence if he or she is caught running a prostitution business. Massage parlors are also popular places to seek sexual services. Massage girls offer massage service followed by sexual service for a “tip” Massage girls enjoy the benefit of an “earlywarning” system, where a warning will be given to the parties involved when the police are on their way, so that they can dress before the police arrive. There are hundreds of massage parlors throughout the city with entrance fees ranging from 28 to 80 dollars. Most of them are licensed business premises with a Public Entertainment license. Also, there are other social escorts who advertise their services on the Internet and on flyers. Some social escorts can be very expensive. Together, sex workers from these venues represent a relatively small portion of the total sex worker population in Singapore.

This paper focuses solely on the low-end market (Geylang). Geylang stands alone as the largest market in Singapore’s commercial sex industry, as its size and popularity make it a top destination for prostitution. The services found venues like Orchard Tower Bars and nightclubs are not perfect substitutes for those found in Geylang, because services offered in the higher-end venues are more diversified and target wealthy individuals. The Geylang market is highly competitive. Prostitution activities are concentrated in a small zone of 25 lanes. Within it, large numbers of nearly homogeneous prostitutes publicly solicit on the streets and sell similar services. Differences in sex workers’ characteristics may make one more desirable than the other. Nevertheless, they are nearly perfect substitutes in the clients’ eyes. On the other hand, clients bear a negligible search cost in the red light district. First, there is zero risk of being penalized for patronizing the prostitutes. Second, there is minimal social cost in terms of reputation loss by walking in the red light district, because Geylang is a popular tourist and dining destination. Most importantly, clients are able to easily locate a match within 2-5 minutes due to the high density of prostitutes on the street.

Chinese and Vietnamese sex workers dominate the scene and are patronized by mostly Singaporean men, Caucasian men and Bangladeshi construction workers. As a place for cheap sexual services, it is a favorite destination for construction workers and other less wealthy clients. The plentiful supply of Chinese women also makes Geylang the preferred choice for Chinese clients who desire a “girlfriend” kind of experience with the sex worker. It is also a particularly attractive venue for elderly single men who desire companionship. Sex workers in Geylang start work late in the afternoon or early evening and finish work in the morning. Because the initial engagement of the prostitutes and clients takes place on the public street, flirting and negotiation time are relatively short in this segment of the market, as both parties prefer to maintain minimum public exposure. All the sex workers solicit within the areas of even-numbered lorong (lanes) between lane 1 and lane 30. There is little differentiation in the services offered and the large number of the suppliers make this micro-market close to a perfectly competitive market. The service rate is set to float around S$30-S$200 with a median price of $60 and standard deviation of $35. Freelance street sex workers solicit independently but are collectively overseen by pimps, depending on the areas of their business. Each lorong (lane) is controlled by a pimp who oversees the business (protects the women from abnormal clients), provides the girls’ accommodation, and protects them from being arrested in the event of police raids. In return, they ask for a cut of the unit service price (normally about 30 -40 percent) as compensation and $10 a day for accommodation and transport services...

The enumerators had a higher chance of interviewing less attractive sex workers, as they have longer unemployment periods during each shift and are more tempted by the gift voucher we offer...

The sample consists of 177 street sex workers from Geylang with a total number of 805 transactions. The average number of transactions the sex workers reported is 4. There were 674 transactions where the sex workers initiated the price and 131 transactions where the clients initiated the price. The latter 131 transactions are used as a basis for checking the clients’ pricing behavior and consumption capability.

Singapore has a rich composition of sex workers in the illegal market. My sample includes street sex workers from Thailand, China, Vietnam, Indonesia and Singapore (see Table 5). Sex workers from Myanmar, Cambodia and Sri Lanka are less common but are also active and concentrated in the low-end market. As expected, the sex workers in my dataset have low educational attainment. 72 percent of the sample completed only primary education, and 21 percent of these women are illiterate. Less than 10 percent of the sample have been educated beyond high school. The average age of the sex workers is 20, with the youngest aged 18 and the oldest aged 39. The majority of the sex workers in the sample are single (82.5 percent) and 23 percent have at least one child. Over half the sample have at least 2 years’ experience as a sex worker prior to working in Singapore. The average sex worker works in Singapore for about 2 years.

Sex workers on Geylang Street are full-time sex workers. It is reported that they work 6-7 days a week (see Table 6). The average daily working hours are 9 hours on weekdays and 11 hours over the weekends. The average number of customers the sex workers have a day is about 4. Earnings from providing sexual services are a major source of the sex worker’s income. Other forms of income are tips or earnings from being booked by the clients for a whole day. The average unit price for sex is S$70 with lowest rate of $30 and highest rate of S$200. The average service duration is around 55 minutes when excluding overnight services...

The Chinese, Caucasians, Indians and Bangladeshis are the major consumers of adult services in Geylang (see Table 7). Together, the Chinese and the Caucasians represent 50 percent of our client sample. One out of five clients in our sample are regular customers, and about 30 percent of the total clients are tourists. Most of the transactions take place in either motels (70 percent) or hotels (22 percent). Only about 6 percent of the transactions occur in the client’s residence. There is very high awareness of contraception among both clients and sex workers in Singapore. Over 99 percent of the transactions in my sample involve the use of condoms.

Price differentials in adult services among racial groups were documented by Levitt and Dubner (2009) in Super FreakEconomics. They report that white people pay $9 extra per sexual service than black customers, while the Hispanic customers lie somewhere in between in Chicago’s prostitution market. A similar type of price discrepancy is observed in Geylang. Sex workers ask Caucasians for an extra S$17 per sexual service relative to the Chinese. Bangladeshi clients are asked for S$25 less than the Chinese. The final price that Caucasians will pay for sexual service is S$13 higher than what the Chinese pay, while the final price the Chinese pay is S$25 higher than what Bangladeshis pay (see Table 1)...

The sex workers reveal distinct attitudes towards clients of different ethnicities. They consistently favor Chinese, Japanese, Korean and Caucasian clients. On a scale of 1 (dislike) to 5 (like very much) with 3 being “like”, these three client groups earn an average rating of 4 (see Table 2). The sex workers collectively express their fondness towards these clients for the following reasons: (1) Chinese clients are more likely to be returning customers; and, (2) the Caucasian, Korean and Japanese clients are more willing to pay. This observation is uniform even across the more attractive and less attractive sex workers, as well as across sex worker’s country of origin (see Table 2). However, the less attractive sex workers rate Caucasian, Korean and Japanese more highly by a magnitude of one, as compared to the more attractive sex workers.

In contrast, the Malay and Indian clients earn low average ratings of 2.74 and 2.07, respectively. The rating disparity is more exaggerated among Indian and Bangladeshi clients. Bangladeshis receive a higher rating than both the Malays and the Indians at 3.10, despite having the lowest reservation price. It turns out their rating is inflated by the preference of the less attractive sex workers who give them a rating of 3.29. Attractive sex workers give the lowest rating of 1.77 to Indians.

To understand the motivation behind sex worker’s preference against Indians, we asked “Given the same price and equally attractive client, do you prefer ethnic X to ethnic Y and why?” and “What is the reason for a failed bargain?” in the survey. 24 subjects on Geylang Street responded to the former question with a combined total of 66 responses from all the venues (street, bars and nightclubs). Based on these responses and informal conversation with sex workers and pimps, we firmly believe Indian clients are less popular among sex workers mainly because of their body odor, dark skin tone, less expected wealth, and to a lesser extent, because they are more demanding/rough and bargain a lot. The characteristic of being demanding/rough could take the form of requesting a longer or more strenuous service or more adventurous activities during the service. Many sex workers make direct comparisons between seemingly similar groups like Bangladeshis and Indians, and voiced their preferences for the former over latter specifically because Indians take more service time and are often not able to match the price for it. Some interviewees justify their distaste towards Indians by claiming that Indian men have a higher probability of being sexually violent*.

* - According to Survey International Men and Gender Equitable Survey (IMAGES) by the Centre of Research on Women, US, 24% of Indian men have committed sexual violence at some point in their lives and 20% admitted to having forced their wives or partners to have sex. In contrast, only 2% of Brazilian men and 9% of men in Chile, Rwanda, Croatia and Mexico have committed sexual violence.

The sex workers’ distaste towards dark skin tones places the Malays, Indians and Bangladeshis at a disadvantage...

There are moderate degrees of matching between sex workers and the clients. Over 80 percent of transactions (see Table 3) involving the perceived wealthy client groups (Caucasian, Korean and Japanese) are associated with more attractive sex workers. Most of the less attractive sex workers are attached to less desired clients (Bangladeshis, Malays and Indians). In particular, 93 percent of all Caucasians are attached to more attractive sex workers and 93 percent of Bangladeshis are attached to less attractive sex workers. Singaporean Indian sex workers, the least favored group because of their dark tone, are mainly attached with either with Indian men or Bangladeshi men. Nevertheless, every sex worker has Chinese clients. Half of Chinese men in my sample deal with more attractive sex workers and the remaining half go with less attractive ones. No specific sex worker type is matched to a particular clients’ age group.

In addition, sex workers have a set of criteria that determine whether they will approach potential customers and how they set the initial price. The top three factors influencing such behavior are: “the money the client spends on them”, “Ethnicity of the client” and the “Looks of the client”. It is evident that sex workers rely on the client’s ethnicity as a critical signal to make business decisions...

The sex workers place an 18 percent premium on services with Caucasians and a 18 percent discount for Bangladeshis in comparison to the Chinese (see column (3)-(5) in Table 8). More attractive sex workers place 16 percent higher initial prices on Indians as compared to Chinese... On the other hand, no significant initial price disparity is observed between the Chinese and the Malays for any identical sex worker.

Price discrimination is often observed in markets where the customers have identifiable traits and services are not resalable. In my study, in addition to ethnicity, these traits include the client’s outfit and whether the client is a tourist. But, the most important factor is the client’s ethnicity. Ethnicity alone explains 46 percent within variability in price differentials... better-dressed customers are quoted prices that are 9 percent higher than those who are less well-dressed. Tourists also pay a 7 percent price premium compared to local customers."

(Continued)
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