by a handful of small NGOs, operating mainly in urban centers (Krekó and Scharle, 2020).<sup>4</sup>

# **3 Data**

The analysis is based on an individual-level linked employer-employee administrative panel database, covering a randomly selected half of the population of Hungary in 2003, who are then followed up until 2017. The database consists of linked data sets at the monthly frequency of the pension, tax and health care authorities and contains detailed individuallevel information on employment and earnings history, use of the health care system, pension and other social benefits, and firm-level indicators. Importantly, it also contains information on the type and amount of different disability benefits and old-age pensions received. Two important limitations of the data are that the employment status of DI recipients cannot be observed until April 2007 and we do not observe the health condition based on which the disability benefit is received. Based on the 2011 census (Appendix Table A1), the majority of DI recipients suffer from long-lasting diseases. Among those recipients who have an impairment, mobility impairment is the most prevalent form of disability.

When estimating the effects of the reform, we analyze the following monthly indicators of labor market and DI status. DI status is a binary variable that takes value one if the individual is DI recipient in a given month and zero otherwise.<sup>5</sup> The binary variable for employment status equals one if the individual is employed on the 15<sup>_th_</sup> of the given month and zero otherwise. Employment includes self-employment but excludes public work. Importantly, employment was always allowed while receiving DI benefits, with restrictions on the maximum possible earnings.<sup>6</sup> We analyze public work as a separate outcome.<sup>7</sup> Based 4In contrast, the Netherlands provided access to a wide range of active labor market programs (Drøpping, Hvinden and van Oorschot, 2000) and introduced a temporary program to cushion the short-term impact of the reform on those whose benefit was reduced or terminated (and who were not eligible for unemployment benefit) by maintaining their income at its pre-reform level for a period of six months, which was later increased to twelve months (Garcia-Mandicó, García-Gómez, Gielen and O’Donnell, 2020).

> 5Since short gaps in DI eligibility may occur for administrative reasons, we have decided to smooth the DI status variable as follows. If an individual does not receive DI for at most 3 months, we fill in such gaps in DI receipt if the following two conditions hold: (1) received DI both before and after, (2) receives an extra one-off DI benefit payment after the DI gap which amounts on the monthly basis to at least half of the regular DI benefit payment before the gap.

> 6Until 2009, the earnings limit for the disability pension was determined on the basis of the valorized previous earnings using a complex calculation. From 2010, the earnings limit was changed to double the amount of the disability pension. The recipients of the regular social assistance were allowed to accumulate earnings up to 80% of their previous earnings until 2007 and 80% of the minimum wage from 2008 (Krekó, Prinz and Weber, 2023). After the 2012 reform, the earnings limit was linked to the minimum wage for new entrants, but remained unchanged for those who acquired their benefit before the reform.

> 7The public works scheme was the dominant active labor market policy measure at the time of the DI reform in Hungary, aimed at direct job creation for the unemployed working-age population. The program, which was launched in 1996, was significantly expanded from 2011. The public works scheme had two

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