New Study on Economic Cost of Prostitution Seeks to Stir Gov't Out of Inaction

The new study puts the cost of prostitution to the government put at $90 million annually

File photo: A sex worker in Tel Aviv, Israel.
Nir Kafri

Prostitution is a 1.3 billion shekel ($360 million) industry that employs some 12,000 people, according to a government estimate made last year. But the government doesn’t benefit financially and, in fact, prostitution costs its some 320 million shekels ($90 million) a year.

That’s the estimate prepared by researchers from the Herzilya Interdisciplinary Center’s Tiomkin School of Economics, which took into account everything from lost tax collections to the cost of health and welfare imposed by prostitution.

“The study shows how much the country would profit if women weren’t in prostitution,” said Hilla Shema-Hiner, an attorney and co-author, together with IDC Prof. Tamar Regev.

“[It] was done in order to examine the cost of the phenomenon and to show from an economic viewpoint that it is worthwhile to reduce prostitution and to encourage spending to address it by the government,” she said.

The study was commissioned by Israel Social Finance, a non-profit that is using the figure ahead of a social bond issue it’s planning. The proceeds from the issue will go to financing rehabilitation programs for prostitutes. Bondholders are repaid based on the programs’ success in saving the state tax money.

The biggest item in the costs to the government come from welfare costs, which amount to 177 million shekels annually. That includes the costs of helping the estimated 12,000 children of prostitutes, 8% of whom are in state-financed boarding schools at an average cost of 9,000 shekels a month or 100 million a year,

Another 13% of prostitutes’ children are sent to foster families, at a cost of 4,000 shekels a month, or a combined 73 million a year. About 35% of their children are put up for adoption, a process that costs 56,000 shekel per child or a total of 2 million shekels annually, according to the study.

The second big cost to the government comes from taxes not paid by prostitutes who work in the underground economy. The study puts the lost tax revenues at 115 million shekels, which works out to 9,600 shekels per woman per year. That based on the assumption that the government’s estimate of 1.3 billion shekels is right and that in the absence of working prostitutes, 40% of that money would be spent elsewhere.

Even if the ex-prostitutes were all single mothers entitled to tax benefits and they were earning low wages, the tax take for the state would still amount to 27 million shekels a year, the study estimates.

Other costs to the state include law enforcement, including policing, the courts and prisons, that add up to another 7 million shekels annually as they relate to prostitution offenses. Another 7 million goes to healthcare costs that the women would probably avoid if they weren’t working as prostitutes.

The annual murder rate of prostitutes is 2.6 victims, which amounts to about 2.3 million shekels per death in related costs.

Social Finance Israel has issued bonds for a campaign against diabetes and to deter student dropouts from academic programs. Yaron Neudorfer, its CEO, is now talking with the finance and welfare ministries about collaborating on the newest bond issue, which he expects to sell to banks, philanthropic funds and private individuals.

“This undertaking transfers the risk involved in rehabilitation from the taxpayer to investors,” he said. “If the rehabilitation program succeeds everyone benefits, first and foremost the women who leave the tragic circle of prostitution, the government, which saves money – and the investors who get their money back.”