Wildcatting

by on July 27, 2013 at 7:28 am in Economics | Permalink

Wildcatting is a stripper’s guide to boom towns like Williston, North Dakota. It’s insightful on the principal-agent problem, why natural resources aren’t a geographic blessing even when they aren’t a curse, selection effects and immigration (” I never met a boring stripper in Williston.”) and small town life.

I am thinking of asking my IO students to explain why stripper pay structure changed with the boom:

It took a long time for things to quickly change. First, Whispers started booking four dancers. Then a second club, Heartbreakers, opened right next door, and they didn’t even cap the number of dancers that could work. Not only that, they didn’t pay the dancers — and instead charged them a whopping $120 flat stage fee. Whispers upped their game by going to six dancers at some point in 2011. The last time I got a paycheck from them was in February 2012, and then the owner told me they weren’t going to pay dancers at all anymore.

So starting in 2012, instead of getting paid $250–500 a week, depending on the booking, we paid Whispers $120 a night. Instead of keeping $15 from each dance, dancers kept the whole $20.

Strippers are not immune to the great stagnation:

The American worker has never been so efficient in terms of output over hours worked. At the same time, real wages and benefits have plummeted. Prospects are shitty for college graduates and non-graduates alike. Layoffs and cutbacks in previously solid industries protect the profits of an ever-smaller class at the expense of those who produce value. In stripper terms, here’s what that looks like: Lap dances in many places still start at $20, the same price they were in 1990. Customers expect ever-higher levels of contact and performance skill, meaning strippers work harder to earn the $20 or the dollar stage tip that is worth a lot less than it used to be.

…The one big advantage you have if you’re a stripper, though, is the ability to travel to greener pastures. If you would like to have a job in another town, as long as you look good enough for the club’s standards, you’re hired. So those who can, move. When the level of bullshit is too high or the earnings too low, they the hit the road. Same as the men who wind up traveling to work in the oil fields. If you can make $30,000 more a year driving heavy equipment in North Dakota instead of in Louisiana, and you need that money, you go. Is this the logical progression of a service economy? It looks like migrant labor.

…Mobility giveth and mobility taketh away, and while I was grateful to have the freedom to come to the boomtown, I was even more thankful to have the freedom to leave.

The piece is also of interest when read at the meta level.

mike July 27, 2013 at 7:31 am
Ryan July 27, 2013 at 7:54 am

Not an economist by any means, but don’t you folks call this, something like, complementary goods e.g. strippers and oil. Wouldn’t be hard to model. As far as the more for less part of the story, I blame saturation in general and the Internet.

Ed July 27, 2013 at 9:01 am

I get the overall point that strippers’ earnings are under the same pressure as those of everyone else.

I’m curious about the two business models for running a club. In one, the club pays the strippers, who also earn a sort of commission per customer, with the customer paying the club more than the stripper. In the second, the strippers pay the club and all the customer money goes directly to the stripper.

It seems that with the second module the club is really providing a venue where the strippers can solicit for themselves, with some protection from customers and the police. In the first, the club is trying to provide more value added and more management of what the strippers are offering. The club in the first place is essentially doing sales to other salespeople instead of trying to sell directly to the people who want to see strippers.

The question is whether this is a pattern with other service industries, and also if bad economic times will lead to a preference to one of the business models over the other.

Foobarista July 27, 2013 at 1:56 pm

Lots of businesses already have a similar “engagement model”: beauty salons, massage parlors, etc. The biz provides the venue and large equipment, and any back-office support (a receptionist, POS, etc), and the agents pay either a fixed “rent” or split their take. Good “agents” want to pay rent.

My wife, who’s sold hundreds of small businesses, has rarely encountered a business of this type that actually hires the stylists/masseuses/etc and pays them a salary.

In other countries, we’ve also seen this with restaurants in some areas: waiters aren’t employees, but independents who “recruit” customers from the street. Once recruited, they also serve them and get a commission from the sale of the food and drink.

Frederic Mari July 27, 2013 at 2:59 pm

I suspect the agent model may have various tax and health care (non) provision related advantages. As with temps, those people aren’t employees so it reduces the commitment the company has to them.

OTOH, you need to be in an industry where your employees are not highly valued/can be replaced fairly easily.

Susan Elizabeth Shepard July 27, 2013 at 3:16 pm

^That is definitely true. Strip clubs are an excellent demonstration of the independent contractor model in the U.S. That’s what Foobarista is referring to above when he mentions beauty businesses. Nail techs and cosmetologists pay a fee to the salon for the space, just like strippers pay a house fee to the club, then are responsible for their own income, Social Security and Medicare taxes, which saves the business from paying those and from the cost of the accounting for them. Problems arise when the business doesn’t follow the rather strict IRS guidelines for independent contractor status, for instance by mandating minimum work hours or exercising certain controls over the IC. Then they are vulnerable to lawsuits, and the outcome is usually unfavorable for dancers if they are reclassified as employees because they wind up paying out more to the club than they did as ICs. Sort of how a massage therapist who works at a spa as an employee might get $30 from the $80 a customer pays for a massage rather than keeping everything above her business costs.

Hazel Meade July 29, 2013 at 12:42 am

The agent model makes sense as away of incentivizing performance from the strippers. Basically, if you can do enough lap dances to cover the stage fee, then anything else you can fit in is yours, with no need to tip the bartender for each dance or pay a cut to the house. So ultimately, the daner could make more money under the agent model, as long as she does a lot of lap dances. The stripper is thus incentivized more strongly to do as many lap dances as possible.

Another factor could be that there is less social stigma against being a stripper these days, so there are a lot more strippers out there, so they can be easily replaced and the club doesn’t need to pay them anything to retain them.

Hazel Meade July 29, 2013 at 10:01 am

In other countries, we’ve also seen this with restaurants in some areas: waiters aren’t employees, but independents who “recruit” customers from the street. Once recruited, they also serve them and get a commission from the sale of the food and drink.

In theory that could work even without a formal agreement from the restraunt. A waiter could set up shop in a counter-serivce establishment, taking peoples orders and bringing them their food.

Leedsprinter July 27, 2013 at 9:57 am

A prostitute told me she charges the same as she did 10 years ago. In the UK they suffer quite a bit from immigrants from eastern Europe who undercut prices.

Dylan July 27, 2013 at 10:19 am

One strongly suspects that in the prostitution racket immigrants from eastern Europe also greatly increase quality over domestic workers.

yo July 27, 2013 at 11:21 am

Real prostitute earnings drop off with age, that is a known fact.

zbicyclist July 27, 2013 at 10:32 am

“If you can make $30,000 more a year driving heavy equipment in North Dakota instead of in Louisiana, and you need that money, you go. Is this the logical progression of a service economy? It looks like migrant labor.”

Little is more American than moving around to find better economic prospects. That’s why people came to the U.S. That’s why people settled the west. We didn’t call them “migrant labor”, we called them brave pioneers.

prior_approval July 27, 2013 at 11:19 am

‘we called them brave pioneers’

Like the Okies?

zbicyclist July 27, 2013 at 1:41 pm

True, the Okies weren’t called “brave pioneers”, but they serve as an example of my more general point that mobility for economic gain is very American (although rates have been declining http://usatoday30.usatoday.com/news/nation/story/2011-10-03/migration-americans-stay-put/50647198/1 )

prior_approval July 27, 2013 at 2:48 pm

‘but they serve as an example of my more general point that mobility for economic gain is very American’

Actually, just very human.

TallDave July 28, 2013 at 3:31 pm

Around half the Okies fled the state during the heat waves of the 1930s, which we now know never actually happened.

DM July 27, 2013 at 10:58 am

$20 a lap dance in 1990???? Maybe in Vegas, but certainly not in most towns.

anon July 27, 2013 at 11:43 am

“Females who lived in Northern California during the early years of the Gold Rush could name their ticket. The census of 1850 places the female population, by that time increasing, at less than eight percent of the total inhabitants of the country, while in mining counties the proportion fell below two percent.”

http://www.sierrafoothillmagazine.com/women.html

“What types of women came to the Klondike during the gold rush? asks historian Alice Cyr.

She’s testing her audience’s knowledge and she’s not disappointed.

“Those in the service industry,” says a voice from the crowd of 60 gathered at the MacBride Museum of Yukon History.

“That’s right — the ‘service industry,’” Cyr answers with a big laugh. “What a wonderful way to put it, and yes they did provide a very valuable service.”

Every Monday Cyr engages and entertains audiences at the Museum with stories of some of the most infamous characters in Yukon’s gold rush history – the actresses, dance hall girls and the prostitutes.

The actresses occupied the top tier of Klondike society.

“Those 40,000 men who laboured on the creeks needed entertainment, and if that entertainment was good the men would throw gold nuggets on stage,” said Cyr. “Some of the actresses would literally be ankle-deep in nuggets.”

http://www.yukon-news.com/news/prospectors-and-prostitutes-mining-the-miners

Gold rush San Francisco had its own version of this mythology: that of the bawdy pioneer prostitute. The suggestion conjures images of lavishly dressed women draping the arms of tough looking gamblers drinking whiskey and throwing bags of gold dust on the card table. Indeed, some of this mythology rings true. Prostitutes occupied a privileged place in gold-rush society, with economic opportunity beyond that of any other working American females. And they certainly belonged to the pioneer, gold-miner elite, involved in legendary bar-fights and shoot-outs in the honor of their slighted lover. One San Francisco madam, Belle Cora, had her lover Charles Cora, hung for such a crime. (She married him a couple of hours before his execution.)

“Still, prostitution quickly developed into one of the most degrading and subjugated professions in San Francisco society. Whether its practitioners were indentured Chinese women, economically and socially oppressed Latina women, or kidnapped and enslaved white women, prostitution for some became a form of imprisonment and punishment as opposed to a profession. At the same time, the number of prostitutes multiplied and developed a hierarchical system in which many women were disempowered by the lack of economic opportunity. From 1848 to the late 1850s, prostitutes experienced an unprecedented ascension in power and a brutal fall from grace in San Francisco.”

http://foundsf.org/index.php?title=Gold-Rush_Era_Prostitutes

Frederic Mari July 27, 2013 at 3:14 pm

Sometimes, the gold rush can outlast the strippers rather than the reverse.

In London, strip joints bloomed and blossomed in the late 90s early 2000s but these days it’s more or less over, glamour gone.

I wonder how much of that is a consequence of Banks forbidding their male employees from going to these places for fear of lawsuits by female employees…

Eric July 27, 2013 at 3:30 pm

Are there cartels?

Dan King July 27, 2013 at 4:00 pm

The book, Hookernomics: The Business Of Sex, discusses similar issues at some length. You can find it on Amazon Kindle.

Hazel Meade July 29, 2013 at 12:28 am

The piece is also of interest when read at the meta level.

I’m curious as to what you mean by that. What is reading something at the meta level?

Also, one thing I disagreed with in the article is the complaint that the money leaves town. Would it be preferable to build a giant city around Williston, only to have it go bust when the oil runs out, or the work winds down? Temporary housing seems more efficient for all sorts of reasons. Don’t encourage people to settle where there’s no reason to have a permanent settlement.

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