Job loss is an understudied risk for formal workers in low- and lower-middle-income countries. Moreover, it is unclear how to optimally insure workers against it; typically, the only source of job loss insurance for these workers — including in our setting — comes from government-mandated severance pay. We provide evidence on the impacts of job loss among female factory workers in Ethiopia and on how these impacts can be mitigated. We leverage quasi-experimental variation in job loss, experimental variation in job-loss support payments, and high-frequency data spanning a period of 13 months after displacement. We find that job loss is a persistent shock that reduces employment and consumption spending for longer than one year, and almost doubles the rate of poverty. An additional lump-sum payment encourages early spending and reduces both overall and manufacturing employment. In contrast, providing an equivalent amount in monthly tranches — a simple change in payment modality preferred by a majority of workers — enables workers to better smooth consumption expenditure without negative employment effects. We show that workers have high willingness to pay for additional job-loss insurance, but also heterogeneous preferences over the payment modality. This generates a key trade-off between workers’ private welfare and the government industrialization objectives: allowing workers to choose their preferred payment modality increases their surplus, but at the cost of reducing their future employment in manufacturing.