Disability benefits are costly and tend to reduce labor supply. While spending can be contained by careful targeting, correcting past flaws in eligibility rules or assessment procedures may entail welfare costs. We study a major reform in Hungary that reassessed the health and working capacity of a large share of beneficiaries while leaving work incentives unchanged. Leveraging birthday and health cutoffs in the reassessment, we estimate employment responses to termination or reduction of benefits driven by income effects. We find that among those who exited disability insurance due to the reform, 60% were employed in the primary labor market, 3% participated in public works and 37% were out of work without benefits in the post-reform period. The consequences of exiting disability insurance sharply differed by pre-reform employment status. 80% of beneficiaries who had some employment in the pre-reform year worked in the primary labor market, compared to only 38% of those without pre-reform employment.

We study the impact of a large payroll tax cut for older workers on employment and wages in Hungary. By exploiting administrative data and applying a difference-in-differences empirical strategy, we document a modest employment increase equivalent to a labor demand elasticity of -0.3 and a pass-through rate of 22%. These average effects mask large heterogeneity across different firms. Employment mainly increases at low-productivity, low-paying firms, while no jobs are created at high-productivity, high-paying firms. At the same time, the tax cut is passed through to wages only at high-productivity, high-paying firms, while low-productivity, low-paying firms do not share the benefits of the tax cut with their workers. These results point to important heterogeneity in the incidence of payroll tax cuts across firms, highlighting that workers at different firms benefit differently from payroll taxes. They also demonstrate that payroll taxes can have a significant impact on the composition of jobs in the labor market.