KCG Research: Disability Benefit Reassessments can Reduce Employment before Benefits are Cut

A new study with contributions from Dr. Cecília Hornok (KCG External Researcher & ELTE Centre for Economic and Regional Studies) that examines how large-scale disability insurance reassessments affect employment and earnings is recently published in the Journal of Public Economics. The paper by Cecília Hornok and her co-authors, Anikó Bíró (ELTE Centre for Economic and Regional Studies), Judit Krekó (ELTE Centre for Economic and Regional Studies & Budapest Institute for Policy Analysis), Dániel Prinz (World Bank), and Ágota Scharle (Budapest Institute for Policy Analysis) provides new evidence that such reforms influence labor supply not only through actual benefit loss, but also through the threat of reassessment itself.

Disability insurance systems sit at the core of a fundamental policy trade-off: they provide income protection for individuals with reduced work capacity while also shaping incentives to work and public spending. Across OECD countries, rising disability caseloads have led to reforms aimed at tightening eligibility or reassessing existing beneficiaries. Yet such reforms often have ambiguous employment effects, especially for older or long-term recipients.

The paper studies a large-scale reassessment reform introduced in Hungary in 2012, which required many existing disability insurance beneficiaries with moderate health impairments to undergo renewed eligibility assessments. The setting allows the authors to separately identify behavioral responses before and after reassessment decisions are made.

The study’s central finding is a threat effect. Immediately after the reform was announced—but before any reassessments had taken place—many beneficiaries reduced or stopped working. This decline occurred despite the absence of binding earnings limits, suggesting that individuals perceived working while receiving disability insurance as increasing the risk of future benefit loss. The response was particularly pronounced among individuals with an intermediate predicted risk of losing benefits, consistent with behavior driven by uncertainty about eligibility rather than actual enforcement.

Once reassessments began and benefits were reduced or terminated, employment gradually increased among some affected individuals as they returned to work. However, this adjustment was slow, and many experienced extended periods without either employment or disability benefits. As a result, overall employment effects were negative in the short run and close to zero over the medium term.

More broadly, the findings show that disability policy design and communication matter not only through formal rules, but also through how beneficiaries interpret future eligibility risk. Even when work is formally allowed, perceived insecurity can significantly reduce labor supply.

The above-mentioned article “Bíró, A., Hornok, C., Krekó, J., Prinz, D., and Scharle, Á. (2026). “The Employment Effects of Disability Benefit Reassessment”. Journal of Public Economics 259, 105652.” can be accessed here.