severance pay creates its own moral hazard problem by encouraging workers to quit their jobs to some extent although it does not reduce job search efforts this could lead to an increase in investments in the workers by that employer but it also reduces worker mobility which affects allocative efficiency in the labour market second the same increase in firing costs represents a considerable complication for smes when they have to pay multiple severances at the same time because it could generate liquidity and solvency risks lastly in several cases workers do not receive their severance pay owing to the difficulties mentioned above and because firms do not comply with the laws owing to the weakness of legal frameworks and inadequate law enforcement as in the case of unemployment insurance most of the benefits defined depend on the design of the mechanism