Via Marginal Revolution comes a link to an analysis of prostitution by mathematics author John Allen Paulos. Paulos asks why prostitutes make so much money. He comes up with a ridiculously complicated answer involving the benefits women get from being married versus how engaging in prostitution hurts a woman's chances of finding a husband. His policy recommendation is to reduce prostitution by increasing salaries for both men and women. Huh?
Paulos needs to bring his head of the clouds and apply basic economics to the problem.
The earnings from prostitution is determined by supply and demand, just like everything else. Because demand for prostitution services is high relative to supply, prostitutes make pretty good money.
Why is supply so low? It ought to be pretty easy to think of reasons for why there aren't more prostitutes.
(1) The stigma of the profession--and this is really a big one.
(2) Risk of catching disease.
(3) Risk of violence by customers.
(4) Risk of violence by pimps.
(5) Risk of going to prison. (In the same manner, the risk of going to prison for selling cocaine keeps the price of cocaine much higher than it otherwise would be.)
(6) Prostitutes prefer leisure over money so they service far fewer customers than they might be able to.
(7) Prostitutes might not make as much money as you think because pimps take most of it from them. (Similarly, Steven Levitt, the author of Freakonomics, researched drug dealers and discovered they make approximately minimum wage because their bosses take most of the profits.)
(8) Barriers to entry. I'm not sure what they are exactly, but I'm willing to entertain the notion that there are hidden barriers to entry I don't know about.