This report uses data from the Health and Retirement Survey (HRS) to analyze transitions in disabilities and employment from 1992 to 1994, the first two waves of the HRS survey. The survey included people ages 51 to 61 years of age in 1992, resulting in 8,737 participants. The report estimates the incidence of disabilities from 1992 to 1994 and explores the effect that developing a disability has on maintaining employment. Results of the survey indicate: (1) the prevalence of disability increased from 28.6 percent in 1992 to 30.4 percent in 1994; (2) disability was associated with lower employment rates and persistent disability was associated with the lowest employment rates; (3) among all respondents, employment rates declined from 69.9 percent in 1992 to 63.6 percent in 1994, and people who developed disability experienced a substantial decline in employment rates at 25.2 percent; (4) people with disability in both 1992 and 1994 who were not employed in 1992 reported low rates (61 percent) of job entrance; and (5) the effect of disability on employment was greater for men than for women and for racial/ethnic minorities than for whites. (Contains 10 references.) (CR)