A friend of mine recently asked my opinion on human trafficking the other day and if there was any economic justification behind it.
Human trafficking isn't just a Third World phenomenon. It happens in the US and Europe all the time. Ever take the bus down Geary and see all the massage parlours with bars on the doors? That's a sign of human trafficking. In the US, foreign women will be promised a job as a nanny and will be charged a fee for finding them a job. When they arrive they are told that the fee has increased to a ridiculous sum. They are given two choices, work as the nanny and it will take 4 years to pay the fee, or work for a "massage parlour" and pay off the fee quicker. There's a great Frontline interview on it here.
The quick simple reason it exists: profit margins. Enough said.
So what are the economics behind it? Let's talk about incentives, rationality, and contract law. The women being trafficked are generally in a bad economic and social position. One cannot argue that they need the money and therefore it's a Pareto improvement since they get compensated for their time doing unmentionable things and the trafficker gets a large payoff. Unfortunately, the trafficker is only compensating for time, not for disutility and risk of prostitution. This goes to the theory of Compensating Wage Differentials which states that jobs tend to compensate more as risk of the job increases. This is not happening here. Further, if they needed the money they would be a prostitute in their own country; why move to another country where you are at the complete mercy of another, possibly brutal, person?
There are arguments for this but they are not based in economics so I will skip them.
So if they could be a prostitute in their own country, why do they come to the US to do it. The simple answer is that they have no intention of being a prostitute when they come here. They enter into a fraudulent contract where the trafficker promises them a job and doesn't perform. Due to the unenforcable nature of these contracts (most are probably verbal) and the host country's high opportunity cost for seeking these people out, human trafficking is basically allowed.
It was suggested to me that human trafficking occurs as a result of Third World economic misfortunes. We already know that aid doesn't work miracles so how could we target the economic misfortunes of the women being trafficked. In many third world nations opportunities for women are not adundant. By increasing women's access to education and jobs, a nation can increase the economic wellbeing of women; which is also shown to increase economic activity in the whole economy.
As far as trying to internalize the externality that is human trafficking, I don't think there is a way. One way to internalize is to privatize; I'm not sure what could be privatized except legalization of prostitution in which a nation could assign a right to sell one's body. Another way to internalize is to raise prices. Well, to do this there must a a market that can be regulated - either way the answer is legalization. There must be other methods of internalizing the cost of an externality but none of them come to mind.
The only way to stop this is to create high disincentives to traffick women. I believe there are two ways, the first is to create high penalties for human trafficking. This would only be effective if the probability of being arrested and convicted was increased. As it stands, the probability of being caught is too low given the payoff matrix. The other solution is to legalize prostitution. With that would come extremely high workplace standards, licences for all owners and workers, enforceable contracts, etc. But once again, policing and enforcing regulations would be key to keep the traffickers away. Obviously this wouldn't eliminate black market prostitution since there's always someone destitute enough to sell themself for a less-than-market price but I believe it would create effectively high enough disincentives to discourage human trafficking. Of course, these traffickers will just choose another country to set up trade.
The baseline: sex is a commodity, however much we don't like to admit it, and there is a price on that commodity. As long as people are willing to pay for sex, human trafficking and prostitution will exist. The only way to create higher standards for these activities is regulation; which can't happen unless prostitution is legalized.
Thanks Helena for the interesting topic. I really enjoyed writing on this one!
Human trafficking isn't just a Third World phenomenon. It happens in the US and Europe all the time. Ever take the bus down Geary and see all the massage parlours with bars on the doors? That's a sign of human trafficking. In the US, foreign women will be promised a job as a nanny and will be charged a fee for finding them a job. When they arrive they are told that the fee has increased to a ridiculous sum. They are given two choices, work as the nanny and it will take 4 years to pay the fee, or work for a "massage parlour" and pay off the fee quicker. There's a great Frontline interview on it here.
The quick simple reason it exists: profit margins. Enough said.
So what are the economics behind it? Let's talk about incentives, rationality, and contract law. The women being trafficked are generally in a bad economic and social position. One cannot argue that they need the money and therefore it's a Pareto improvement since they get compensated for their time doing unmentionable things and the trafficker gets a large payoff. Unfortunately, the trafficker is only compensating for time, not for disutility and risk of prostitution. This goes to the theory of Compensating Wage Differentials which states that jobs tend to compensate more as risk of the job increases. This is not happening here. Further, if they needed the money they would be a prostitute in their own country; why move to another country where you are at the complete mercy of another, possibly brutal, person?
There are arguments for this but they are not based in economics so I will skip them.
So if they could be a prostitute in their own country, why do they come to the US to do it. The simple answer is that they have no intention of being a prostitute when they come here. They enter into a fraudulent contract where the trafficker promises them a job and doesn't perform. Due to the unenforcable nature of these contracts (most are probably verbal) and the host country's high opportunity cost for seeking these people out, human trafficking is basically allowed.It was suggested to me that human trafficking occurs as a result of Third World economic misfortunes. We already know that aid doesn't work miracles so how could we target the economic misfortunes of the women being trafficked. In many third world nations opportunities for women are not adundant. By increasing women's access to education and jobs, a nation can increase the economic wellbeing of women; which is also shown to increase economic activity in the whole economy.
As far as trying to internalize the externality that is human trafficking, I don't think there is a way. One way to internalize is to privatize; I'm not sure what could be privatized except legalization of prostitution in which a nation could assign a right to sell one's body. Another way to internalize is to raise prices. Well, to do this there must a a market that can be regulated - either way the answer is legalization. There must be other methods of internalizing the cost of an externality but none of them come to mind.
The only way to stop this is to create high disincentives to traffick women. I believe there are two ways, the first is to create high penalties for human trafficking. This would only be effective if the probability of being arrested and convicted was increased. As it stands, the probability of being caught is too low given the payoff matrix. The other solution is to legalize prostitution. With that would come extremely high workplace standards, licences for all owners and workers, enforceable contracts, etc. But once again, policing and enforcing regulations would be key to keep the traffickers away. Obviously this wouldn't eliminate black market prostitution since there's always someone destitute enough to sell themself for a less-than-market price but I believe it would create effectively high enough disincentives to discourage human trafficking. Of course, these traffickers will just choose another country to set up trade.
The baseline: sex is a commodity, however much we don't like to admit it, and there is a price on that commodity. As long as people are willing to pay for sex, human trafficking and prostitution will exist. The only way to create higher standards for these activities is regulation; which can't happen unless prostitution is legalized.
Thanks Helena for the interesting topic. I really enjoyed writing on this one!
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