This might be linked to the fact that responses to benefit changes are more evenly distributed across the length of the unemployment spell, compared to the response to changes on duration (the effect of which is mitigated by discounting and which only affects workers exhausting benefits). However, in a counterfactual exercise Cirelli et al. (2021) find that benefit level changes—specifically, a reduction of the replacement rate—would have no effect on unemployment (compared to a hypothetical scenario where the optimal UI system is in place), but would otherwise decrease formal employment by a small amount with small negative welfare effects overall. The authors also find that rising contributions (indirectly financed by payroll taxes) would increase unemployment and reduce formality with important negative welfare effects (compared to the optimal UI scheme proposed by the authors).

In the specific case of digital platform workers in the United States, Garin et al. (2023) find the expansion of UI benefits in the Covid-19 pandemic appears to have decreased these workers’ labor supply. They report a decrease in tax-reported self-employment profits of 22 cents per every dollar increase in UI among platform workers.

**The impact of the unemployment insurance on wages and labor earnings:** The evidence on wages is also mixed. While Landais et al. (2018) find no effect of UI on wages in the literature (reviewing studies of the US and Austria), Doornik et al. (2022) find that UI has a negative effect on wages, as well as evidence that layoff risk is priced into the wage workers received. In the absence of UI, the compensating differential that workers demand from firms for the layoff risk is greater. Specifically, the authors find that following 2015 system reform in Brazil that tightened UI coverage, wages of affected workers increased: by 0.5% for workers whose eligibility criteria tightened relative to those unaffected by the reform. Similarly, hiring wages increase by 1.3% relative to workers unaffected by the reform. Comparing wage changes for risky and safe firms, the authors find a relative increase in wages by 0.15–0.29 percentage points per risk decile (as proxied by layoff intensity or credit risk).

What can reconcile employment and wage effects in the different studies? The exact policy that might be playing a role—we might expect access and an extension of the duration or an increase of the benefits to have different effects—and, moreover, there are structural differences both across studies and between developed and LMICs.<sup>29</sup> To summarize key points, first is whether the work estimates micro or macro elasticities. All the effects in Schmieder and Von Wachter (2016) refer to micro elasticities which omit the effects of these policies on labor market tightness, arising as a consequence of the individuals’ employment response to the policy. The effect of UI on labor market tightness is accounted for by the first two studies who estimate macro elasticities (Doornik et al., 2022; Cirelli et al., 2021). Reviewing the recent literature, Landais et al. (2018) find evidence that the macro elasticity is smaller than the micro elasticity—in other words, that UI increases labor market tightness (i.e. the number of

> 29Robalino (2014) argues that the specific scheme used does not play a role, at least in LMICs. The author claims that neither a pay-as-you-go nor an individual savings account scheme is inherently more efficient and that the policy choices that matter are the benefits level (to all workers, including those that do not have enough contributions to qualify for UI) and the resources needed to finance the system (savings tax, payroll tax, consumption tax, etc.). Taxing savings or wages are two options that could be combined with other options such as consumption taxes (likely reaching a better balance between worker protection and incentives to work).

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