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Classic research on unemployment and mental health has focused on the functions of employment. These functions are considered to be of equal importance for all unemployed. A critique of this perspective has been that it views the unemployed as passive and homogeneous. Instead, an agency approach has been suggested, which focuses on the individual goals of the unemployed. This paper develops and tests a model for understanding the differentiated mental consequences of unemployment, which on a theoretical level integrates both the structural restrictions of the unemployment situation and the agency of the individual. The model is based on previous findings which indicate that mental well-being is dependent on the economic need for employment, on the one hand, and on the psychosocial need for employment, on the other hand. The model integrates both these aspects and the results show that the combined effect is of centred importance for the differentiated mental well-being of the unemployed. The analysis is based on a longitudinal survey of 3,500 randomly selected, unemployed Swedes. [ABSTRACT FROM AUTHOR]