Background Unemployment has been negatively associated with psychological well-being. This study examines the effect of multiple unemployment spells, specifically whether people become sensitised or adapt to unemployment if they are previously employed or economically inactive.

Methods Data come from waves 1–17 of the British Household Panel Survey. Psychological well-being was measured using the 12-item General Health Questionnaire (GHQ-12), and employment status was self-reported. Multilevel modelling was used to examine the effects of unemployment, overall and by previous employment status, on well-being.

Results Without consideration of prior employment status, psychological well-being was poorer at each unemployment spell. Previously employed persons had significantly higher GHQ-12 scores at the first and second unemployment spells but not at the third spell (p_trend<0.0001). Previously economically inactive persons had poorer psychological well-being at all unemployment spells, with significantly higher scores at the third spell than those at the first two spells (p_trend=0.0004). Thus, those employed prior to all unemployment spells adapted, while those previously economically inactive became more sensitised with additional unemployment spells. Pre-study unemployment and average annual household income moderated the effects of unemployment; effects varied by previous employment status and unemployment spell number.

Conclusions The findings suggest that initially employed people who experience repeated unemployment cope better psychologically if they are able to regain employment in between unemployment spells. Those who make several attempts to re-enter the labour market following economic inactivity have a more difficult time, becoming more distressed with each try. This has implications for people affected by welfare to work policies.