From the poor-relief tradition to the social citizenship-based development of the welfare state, the question of available social supports for people with disability has been one of the central issues of welfare reform agendas. Under the increasing influence of neoliberal rationalities, many welfare states have engaged in the redefinition of capacity and incapacity to work in an attempt to manage the fiscal cost of a growing number of people on disability pension and work incapacity benefits. These reconfigurations of income transfers have significant implications for the social and economic participation of people with disability. This article seeks to build knowledge about the policy implications of these changes by comparing recent disability policies in two very different welfare states—Australia and Denmark—who have contrasting approaches to activation measures concerning people with disability. This article examines how these welfare states have reconfigured the meaning of disability, thereby either restricting further or relaxing the conditions of labour market activation. Through these two cases, we argue that there is a case for labour market participation insofar as rights to work through improved employment opportunities take precedence over punitive regimes that reduce access to income support.