Background: Large geographical variations in the incidence of disability benefits have been reported, but it is unclear to what extent that is confounded by variations in disability rates and disease pattern in the population and whether local variations in rehabilitation and health insurance practice modify the employment effect of disease. We have studied risk of labour market exclusion following incident hospitalization for ischaemic heart disease (IHD), and whether this risk may be modified by contextual factors on the municipal level. Methods: A cohort design on a 10% random sample of the whole Danish population including individuals aged 43-60 years, (n = 516.454 person-years including 840 cases of IHD). The independent variable was incident hospitalization for IHD and outcome variable was defined as job loss 2 years after the event. Regional-level data included all the 275 Danish municipalities in 1996. Results: There was a strong association between incident IHD and labour market exclusion 2 years later, odds ratio (OR) = 2.8 (95% confidence intervals (CI) 2.4-3.4). Men had less risk of being excluded than women and immigrant status, low-educational attainment and co-morbidity were significantly associated with job loss. Also, regional characteristics did independently effect labour market exclusion. However, the individual relative risk of exclusion following incident IHD was not modified substantially when neither the fixed effects of the regional-level variables nor the random effect of municipality was included in the analyses. Conclusion: Geographical variation in incidence of labour market exclusion following incident disease is not primarily an effect of differential social consequences across municipal variations in labour market and socio-economic conditions.