OBJECTIVES:To examine the effects of ill health on selection into paid employment in European countries. METHODS:Five annual waves (1994-8) of the European Community Household Panel were used to select two populations: (1) 4446 subjects unemployed for at least 2 years, of which 1590 (36%) subjects found employment in the next year, and (2) 57 436 subjects employed for at least 2 years, of which 6191 (11%) subjects left the workforce in the next year because of unemployment, (early) retirement or having to take care of household. The influence of a perceived poor health and a chronic health problem on employment transitions was studied using logistic regression analysis. RESULTS:An interaction between health and sex was observed, with women in poor health (odds ratio (OR) 0.4), men in poor health (OR 0.6) and women (OR 0.6) having less chance to enter paid employment than men in good health. Subjects with a poor health and low/intermediate education had the highest risks of unemployment or (early) retirement. Taking care of the household was only influenced by health among unmarried women. In most European countries, a poor health or a chronic health problem predicted staying or becoming unemployed and the effects of health were stronger with a lower national unemployment level. CONCLUSION:In most European countries, socioeconomic inequalities in ill health were an important determinant for entering and maintaining paid employment. In public health measures for health equity, it is of paramount importance to include people with poor health in the labour market.