Can Stricter Disability Reviews Backfire? Evidence from Hungary
by Judit Krekó
Policymakers often assume that stricter disability benefit rules will encourage more recipients to work. But what happens when people fear that working could cost them their benefits?
Our recent study examines a major reform of the Hungarian disability benefit system introduced in 2012. The reform required around 200,000 disability benefit recipients to undergo a new assessment of their health and work capacity. The goal was straightforward: identify people who could work and reduce long-term dependence on benefits.
At first glance, one might expect such a reform to increase employment. Instead, focusing on the oldest cohort of beneficiaries subject to reassessment—those aged 56 when the reform was announced—we found the opposite. Employment in this group started to fall almost immediately after the reform was announced. This happened before any reassessments had actually taken place and before anyone had lost their benefits.
The explanation lies in how people reacted to the reform. Some beneficiaries appeared to conclude that having a job might reduce their chances of keeping their benefits. As a result, some left employment altogether following the announcement. We estimate that a 4.6 percentage-point increase in the perceived risk of losing benefits reduced employment by about 1.8 percentage points during the months between announcement and the start of reassessments.
This reaction is particularly striking because the beneficiaries concerned were generally allowed to work while receiving disability benefits. Most were earning far below the official earnings limits. Nevertheless, many seem to have believed that working could signal to the authorities that they were less incapable and therefore less entitled to support.
Later, a different effect emerged. Some recipients lost their benefits during the reassessment process and gradually returned to work. However, this adjustment was slow. Many spent months or even years without either disability benefits or employment before finding a job. The positive employment effects among those who lost benefits therefore took a long time to materialize.
Overall, over the four-year post-reform period covered by our study, the two effects largely offset each other. The reform reduced benefit receipt, but it did not lead to a sustained increase in employment. The main lesson is that disability reassessments influence behaviour not only through actual benefit cuts but also through expectations and fears about future eligibility. If people fear that working may put their benefits at risk, some may choose not to work even when the formal rules would allow it. Policymakers designing disability benefit systems should therefore pay attention not only to incentives on paper, but also to how those incentives are perceived by the people concerned.
Based on: Bíró, A., Hornok, C., Krekó, J., Prinz, D. and Scharle, Á. (2026), The employment effects of disability benefit reassessment, Journal of Public Economics, Volume 259, July 2026, 105652.
