Sex Workers and the Cost of Safe Sex:The Compensating Differential for Condom Use in CalcuttaVijayendra Rao, Development Research Group, The World BankIndrani Gupta, Institute of Economic Growth, DelhiMichael Lokshin, Development Research Group, The World BankSmarajit Jana, All India Institute of Hygeine and Public Health, CalcuttaVersion: January 2001We thank Andrew Foster, Andrew Morrison, Anna Paulson, Richard Skolnik, seminar participants atBrown University and the World Bank, and two anonymous referees for valuable suggestions. Rao isindebted to the Mellon Foundation and the Population Studies and Training Center at Brown University forfinancial support. The findings, interpretations and conclusions of this paper are those of the authors andshould not be attributed to the World Bank, its Executive Directors or the countries they represent. Pleaseaddress correspondence to V. Rao, Development Research Group, The World Bank, 1818 H Street NW,Washington, DC 20433. Email: [email protected] practice of safe sex by commercial sex workers is considered to be central in preventing thetransmission of AIDS in developing countries. However, anecdotal evidence suggests that sex workers mayface large losses in income from using condoms because of a strong preference for condom-free sex amongclients. This paper attempts to estimate the compensating differential for condom use among sex workers inCalcutta from a survey conducted in 1993. We follow an instrumental variable approach that relies on thenon-systematic placement of sex workers in an intervention program that focussed on providing informationon HIV-AIDS and safe sex practices. This allows us to identify the relationship between condom use andthe price per sex act by reducing the bias from unobserved heterogeneity which is widespread in estimatesof compensating wage differentials. FIML estimates reveal that sex workers who always use condoms facea loss of 44 per cent in their average earnings per act suggesting that there may be strong disincentives thatprevent sex workers from practicing safe sex. This could be a major obstacle in preventing the spread ofAIDS in parts of the world, like India, where knowledge about safe-sex practices is poor.JEL Codes: I12 , J44Key Words: AIDS, Prostitution, Compensating Differentials31. IntroductionThere have been few epidemics in the last century which have affected living standards as severelyin the developing world as the HIV-AIDS crisis. Recent UNAIDS/WHO estimates indicate that in 1999ninety-five per cent of infected individuals lived in developing countries with 5.4 million new infectionsadded every year (UNAIDS 2000). The epidemic is particularly devastating because it strikes the mostproductive members of the population – young adults. It impoverishes vulnerable households not just by thedeath of a wage earner, but also by significantly increasing medical and funeral expenditures (World Bank1997). Depending upon the severity of the epidemic, the death of such large numbers of productiveindividuals can have severe macroeconomic consequences (Cuddington 1993, Over 1992), and overwhelmhealth services by crowding out care for other less devastating illnesses (World Bank, 1997).While the prevalence of HIV-AIDS in Asia is low in comparison to Africa, the sheer size of manyAsian countries and the existence of localized epidemics in several sub-regions demonstrate that the focusof new infections is shifting east (Hwang, 2001). The most recent data indicate that about 7 million adults -7 out of 1,000 - are infected in India compared to 3.7 million infections in South Africa (UNAIDS 2000).As in Africa, over 76 per cent of detected HIV infections in India are caused by heterosexual sex.Epidemiological analyses reveal that HIV has been rapidly spreading from individuals practicing high riskbehavior to the general population (NACO 1999), and India’s National AIDS Control Organization(NACO) identifies commercial sex workers as one of the most important of these high-risk groups. Theyact as points of entry for the epidemic into the population by infecting men who then pass on the disease totheir wives and other sexual partners. Sex workers in India have a high risk of infection not just because oftheir large number of sex partners, but also because the high prevalence of other sexually transmitteddiseases among them which further increase the risk of HIV transmission. Consequently several HIV-AIDSinterventions in India have been targeted at the commercial sex industry (NACO, 1999).Given that the disease has no effective vaccine or cure, and that sex work plays a central role in itsgrowth, promoting the use of condoms and other safe sex practices among sex workers is consideredperhaps the most effective method of preventing the spread of the epidemic (World Bank 1997, Jain et. al.,1994). Condom use not only directly prevents HIV infection, but also protects users from other sexuallytransmitted diseases which reduces the secondary increase in HIV-risk caused by STDs (World Bank 1997).In India as in many developing countries, however, the propagation of condom use is difficult because menhave a strong preference against using them. One indicator of this is that, despite many decades ofextensive government sponsored “family planning” campaigns promoting their use, condoms have notbecome a commonly used method of contraception. Data from a nationally representative sample show,4for instance, that only 7% of married couples use condoms, with female sterilization being the most widelyused method of contraception (27 per cent), followed by abstinence and other traditional methods (20 percent)1. This inherent preference against condoms is compounded by a lack of awareness about HIV/AIDSand safe sex practices among sex workers (Bhave et. al. 1995) and in the general population2.Consequently sex workers who want to practice safe sex face losing a considerable amount ofmoney by doing so. Bhave et. al. (1995) in a study of Bombay sex workers present anecdotal evidenceshowing that the fear of a loss in income is one of the most important factors deterring sex workers fromusing condoms, even after they are made aware of HIV/AIDS and the role that condoms play in preventingit. There are, however, no good quantitative estimates of the size of this compensating differential for safesex which is a potentially important problem in formulating effective AIDS prevention