Trade, Employment And The Informal Sector: An Agent-Based Analysis

This article discusses a multi-agent model of the informal sector. An analytical model is first developed to explore the possible range of relationships between formal and informal employment. Data from the agent-based model support protecting formal sector jobs with current account restrictions. It is seen that restrictions on outsourcing can have a positive effect on formal sector activity. Offshoring, that is, relocating to another country, is also considered. When restrictions on offshoring are studied, it is seen that formal sector employment growth is less robust. Unrestricted current and capital account activity produces a steady state with near zero informal activity, while restrictions preserve the informal sector indefinitely.