The purpose of this study was to investigate some psychological effects of unemployment in school‐leavers using a longitudinal research design. Questionnaires which included mood questions and scales measuring self‐esteem, locus of control and depressive affect, were administered twice to 761 students, once while they were at school, and then again one year later. Comparisons between the unemployed and employed groups revealed that the unemployed were generally less well‐adjusted than their employed counterparts. Specifically they reported greater negative mood and had higher depression scores, and the unemployed girls also displayed lower self‐esteem. These differences, however, resulted largely from an improvement in outlook on the part of the employed, rather than from the unemployed becoming more depressed and losing self