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Amsterdam's Prostitutes: Pros and Cons
Subject Comparative statics
Topic Labor markets
Key Words Regulations, taxes, profit, rent, revenue
News Story

In Amsterdam, a new law took effect in the fall of 2000 regulating brothels and other establishments offering sex for hire. For example, the regulations require brothels to provide a certain amount of daylight, presumably to avoid an oppressive atmosphere. Prostitutes are also required to keep their fingernails short so that they do not tear condoms. Further, separate toilets and sinks for men and women are required. It is questionable whether these stipulations are good for business: patrons actually like darkness and long fingernails, it seems, while separate facilities are nonsensical after the transaction.

At the same time, self-employed prostitutes were required to be citizens of a European country and pay taxes. Since about seven out of ten self-employed prostitutes were African, the number of prostitutes has dropped dramatically. Offsetting this, now some Dutch women are taking up the slack. Not all pay taxes, however. This means that big profits can be earned. A room can be rented for $60 per eight-hour shift, but revenue can reach as much as $600.

(Updated September 1, 2001)

Questions
1. Draw a diagram of the labor market for prostitutes in Amsterdam. Show the equilibrium wage and employment level. Illustrate the effect of the following and explain:
i. The regulations that are unpopular with patrons
ii. The taxes levied on prostitutes
iii. The citizenship requirements for prostitutes
2. How do you explain the fact that Dutch women are taking up the slack? Use the economic theory of labor supply.
Source Susan Taylor Martin, "Regulation brightens light on Amsterdam's prostitutes," St. Petersburg Times, May 28, 2001.

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