This study investigates whether the unemployment rate of the area in which an individual lives affects their level of psychological distress, and the extent to which this is dependent on their own labour market status. Data were taken from the British Household Panel Survey (1991-2008) and longitudinal multiple membership multilevel modelling was carried out in order to account for the complex hierarchical structure of the data. The results suggest that living in an area with a high unemployment rate, defined by the claimant count, confers a degree of protection against the negative psychological effects of unemployment. However, psychological distress levels among unemployed people were still significantly and substantially higher than among their securely employed counterparts.