The literature on optimal unemployment insurance centers on the incentive–insurance trade-off of Baily (1978) and Chetty (2006): higher benefits offer better protection against income loss but weaken job-search incentives. This study extends the debate by introducing occupations and highlighting the risk created by heterogeneous post-displacement income losses, between workers who return to their original occupation and those who switch. It also considers the potential insurance role of switching to easily-accessible gig-employment. These elements are embedded in an optimal unemployment insurance framework to assess whether easy access to gig-work provides insurance against job loss. A search-and-matching model with assets and directed search replicates the findings of Huckfeldt (2022) - occupation switcher suffer from deeper and more persistent income losses relative to occupation stayers - and is expanded to include contingent work. Optimal take-up-adjusted replacement rates fall from 16.9% to 14.4% when gig-employment is available, suggesting that the availability of gig-employment partially substitutes for public insurance.

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