This study (a) assesses whether employed young people, unemployed school-leavers, and unemployed young people who have working experience differ in their psychological well-being, that is stress, depression, and general feelings of happiness; (b) examines the effects of these three work conditions on development and structure of identity; and (c) investigates the effects of identity structure on psychological well-being. The favorability hypothesis of social comparison theory seems fit to explain the relation between identity structure and psychological well-being. An important developmental task during late adolescence is making the transition from school to work. During this transition period, adolescents develop values concerning work and other social institutions (Erikson, 1968; Lennings, 1993). Unfortunately, in today's Dutch society a substantial proportion of young people has been denied work opportunities and is, therefore, unable to make a smooth transition from school to work. According to national statistics, youth in general and school-leavers in particular have been highly represented among the unemployed during the last two decades (CBS, 1994; Ministry of Social Affairs and Employment, 1991). The current study examines the effect on adolescents of being unable to find a job. It focuses on the consequences of failing to obtain a job for development of identity during late adolescence. In particular, the study investigates the effects of unemployment on adolescents' psychological well-being and psychosocial development. Moreover, the study examines the relationship between identity and psychological well-being in employed and unemployed groups of adolescents. EFFECTS OF UNEMPLOYMENT ON THE PSYCHOLOGICAL WELL-BEING Considerable research, both cross-sectional and longitudinal, has studied the psychological effects of unemployment (Feather, 1990; Warr, 1987). In designing the present study, we assumed that unemployment is an undesirable state which results in maladjustment of various kinds (Banks & Ullah, 1988). Given the opportunities which work provides for education, initiative, social contact, and personal development, this assumption is hardly surprising. Most of the evidence for the negative psychological impact of unemployment comes from studies of adults done in the 1930s and the 1970s (Jahoda, 1979). More recent studies (Banks & Ullah, 1988) raised the question of whether or not the effects of unemployment are the same for both adults and youth. It is reasonable to expect that the response of young people might be different. On the one hand, effects of unemployment might be felt harder by adults due to their familial and financial obligations. On the other hand, the range of developmental tasks (physical, emotional and social) faced during adolescence may exacerbate the stresses of unemployment to make it a more turbulent and confusing experience than it is for an older person (Gurney, 1980a). Indeed, several studies have demonstrated that the psychological consequences of unemployment for young people may be serious: unemployed youth experience less life satisfaction and suffer depressive symptoms, diminished self-esteem, and higher levels of distress more than those who have jobs (Banks & Jackson, 1982; Feather,1982, 1990; Goede & Maassen, 1986; Gurney,1980a; Ullah, 1990). This is particularly true for young people who are highly motivated to work, for females, and for those who are less qualified (skilled and semi-skilled work) (Stafford, Jackson, & Banks, 1980; Warr, Jackson, & Banks, 1982). When compared to the unemployed, working young adults are more content, have a higher self-esteem, suffer less from depressed feelings, and voice fewer emotional complaints (Heesink, 1992). Other studies failed to find a straightforward negative relationship between youth unemployment and psychological well-being (Banks & Ullah, 1988). A possible explanation for these inconsistent findings is the often neglected fact that unemployed youth is a more diverse group than these studies suggest. …