The experience of a first psychotic episode is associated with a marked impairment in psychosocial functioning. However, the decline may be already evident in the pre-psychotic phases and play a significant role in the etiopathology of the disease onset. A sample of subjects at ultra high clinical risk for psychosis ("At Risk Mental State", ARMS, n=152) was compared with a demographically-matched general population (n=98,072) on different measures of psychosocial functioning. The proportion of subjects with an ARMS living in communal establishments or living at home with their parents was significantly higher than that of the local population (p<0.001). Subjects with an ARMS showed also higher rates of unemployment as compared to the general population (p<0.001). GAF scores at baseline were significantly lower in unemployed ARMS as compared to students and employed ARMS (p=0.002). ARMS subjects living in communal establishments presented higher rates of co-morbid psychiatric conditions (p=0.007) and lower GAF scores at baseline (p=0.017). Finally, baseline unemployment and living in a communal establishment were associated with an increased risk of developing a psychotic episode within the following two years (p<0.05). We concluded that the "At Risk Mental State" is a clinical condition which is characterized by marked psychosocial impairment and by an increased vulnerability to psychosis. Unemployment at the first contact with the prodromal service may be a risk factor for the development of a psychotic episode.