The employment effects of disability benefit reassessment

We study the consequences of a large-scale reassessment of the health and working capacity of disability insurance beneficiaries in Hungary. Leveraging birthday and health cutoffs in the reassessment, we estimate employment responses to the threat of disability benefit loss and the actual termination or reduction of benefits. We show that due to the threat of benefit removal, many beneficiaries stopped working after the reassessment was announced but before it took place. Another group of beneficiaries lost their benefits and increased their labor supply significantly. Overall, the reassessment had a negative short-term and neutral medium-term impact on employment and earnings. Our results suggest that unintended responses to the threat of benefit loss operate as a substitution effect that can reduce labor supply even without binding formal earnings limits, and thus should be considered in the design of reassessments.

JEL: H55, J14

DOI: 10.1016/j.jpubeco.2026.10565