In a longitudinal study, long-term unemployed youth were assessed at T1 on measures of psychological health (self-esteem and psychological distress), general ability, and literacy levels. At T2, three occupational groups were established (those employed at T2, those continuously unemployed between T1-T2, and those unemployed at T2 who had been in the paid work force between T1-T2). These three groups were examined, firstly, in relation to predisposing factors for occupational status, and, secondly, in relation to psychological health consequences of occupational status. Psychological health was not identified as a predictor of occupational status. Reductions in psychological distress occurred at T2 for the employed group only. No changes occurred in self-esteem for any group. General ability, literacy levels, and length of unemployment were identified as predisposing factors for occupational status. Those with higher general ability, better literacy and shorter periods of unemployment at T1 were more likely to be employed at T2.