The dynamic replicator studying the dynamics of entry and exit of workers from the formal

sector is expressed as
L̇f =Lf [u f −u f , i ]

L̇f Lf Lf
or,
Lf
={ ρ ( 1+ βd ) w f −
Lf + Li
ρ (1+ βd ) w f −( 1−ρ ) [ w −μm ] }
L f + Li i
Lf
or, L̇f = ×{ ( Lf + Li ) ρ ( 1+ βd ) wf −Lf ρ ( 1+ βd ) w f −Li ( 1−ρ ) [ w i−μm ] }
L f + Li
Lf L i
or, L̇f = { ρ ( 1+ βd ) w f − (1−ρ ) [ wi −μm] }
L f + Li
Lf
also, l f = + Lf
Li

Differentiation of both sides yield: l˙f =( L˙ f ( Lf + Li ) −Lf˙ ( L̇f + L˙ f ) )/(Li + Lf )2

However, Lf + Li =L which is constant. Thus on differentiating this equality we obtain,

˙ f and l˙f =( L˙ f / ( Lf + Li ) )
Ṅ i=−N

From here, we get L̇f =l˙f ( Lf + Li ). Substituting it in above expression and putting l˙f + l˙i =1, we
obtain:
l˙f =l f l i { ρ ( 1+ βd ) w f −(1−ρ)[wi−μm]} and in the similar procedure, by using

L̇i=Li ( pay−off ¿informal sector−average pay−off ) we obtain

l˙i=l f l i {(1−ρ)[wi−μm]−ρ(1+ βd )w f } by adopting the same procedure as above.

The labour demand counterparts in equations (12) and (13) are obtained from equations (10)
and (11) by the same procedure