Entrepreneurship can be a promising career path for people facing discrimination in traditional job markets, and training programs that develop entrepreneurial skills can help improve socioeconomic mobility. But they can also bring unintended consequences, according to a new study by Wharton management professor Leandro (Leo) Pongeluppe.

Analyzing data from a business training program offered to people living in Brazilian urban slums, known as “favelas,” Pongeluppe found they caused participants to suffer adverse social and psychological outcomes — stigma linked to their residence in the favelas. The findings highlight the complex reality of socioeconomic mobility, where people who reach higher income levels often face increased prejudice because of where they live.

Incorporating the findings into socioeconomic policy will help improve its effectiveness, suggested Pongeluppe. “Investing in such training is beneficial, in terms of helping lift people out of poverty, but it’s important to acknowledge that social mobility is a complex phenomenon that has both positive and negative effects on the individuals experiencing it. When designing policies to help people advance, it’s crucial to address these negative impacts as well,” he said.

Testing the Effects of Socioeconomic Mobility in Brazil

Pongeluppe examined the effects of a nine-month training program, offered by the non-profit organization Banco da Providência, on 207 participants in 2018. The program provides psychological support, technical training, and management coaching to favela residents in Rio de Janeiro.

He evaluated the program’s impact by looking at two sets of outcomes: economic outcomes (such as job placement and income increases) and social and psychological outcomes (including participants’ feelings of self-efficacy, optimism, and experiences of social stigma).

“When designing policies to help people advance, it’s crucial to address these negative impacts as well.”–Leo Pongeluppe

The findings reveal a mixed bag of effects. On the one hand, Banco da Providência had significant positive impacts on both economic and (some but not all) socio-psychological outcomes. Participants experienced notable improvements in their financial situations, including higher income levels and participation in entrepreneurship.

Additionally, the program positively impacted their sense of self-efficacy and optimism, helping them feel more capable and empowered.

However, the training also led participants to experience an increased sense of social stigma related to their residence in favelas, which have long been associated with criminality. The study shows that, as participants earned more money, they faced even more prejudice. The paper calls this phenomenon the “allegory of the favela,” describing the bittersweet nature of socioeconomic mobility.

Understanding the Impact of Social Stigma and Prejudice

Pongeluppe’s interviews with participants suggest that this stigma arose because, through increased social interactions with potential employers and suppliers, they were often perceived as untrustworthy and associated with criminal activities. Long-standing social and economic inequalities contribute to the stigmatization of favela residents, with media portraying them as inherently linked to criminal behavior. This contributed significantly to the negative social and psychological experience of the participants, the study found.

“The more money they make, the more likely they are to suffer prejudice from outsiders.”–Leo Pongeluppe

Pongeluppe said the results underscore the complexity of achieving socioeconomic inclusion in societies that are discriminatory. “Favela dwellers often enter entrepreneurship as a plan B and prosper in their communities, but they also experience stigma — people don’t want to buy from or sell to them — because they’re from the slums. The more money they make, the more likely they are to suffer prejudice from outsiders. This shows that people can prosper economically, but they cannot change where they are from.”

Applying the Findings to Socioeconomic Mobility Programs

The results have important practical implications. This study is one of the few to investigate the impact of a business training program on both economic and socio-psychological outcomes for people living in segregated areas. By considering both types of outcomes, the Wharton research provides a holistic view of individuals, beyond just their economic contributions.

According to the paper, a holistic view will be beneficial to achieving the United Nations’ Sustainable Development Goals, particularly those related to poverty eradication (Goal 1), reducing inequality (Goal 10), and promoting sustainable cities and communities (Goal 11).

Pongeluppe said: “Emphasizing entrepreneurship as a path out of poverty is key, and efforts should be made to reduce stigma, such as providing specific lines of credit. Additionally, training should include helping participants connect with potential buyers and suppliers, aiding their transition from the informal to the formal economy.”

But ultimately, his study calls for a societal shift in attitudes towards disenfranchised people, which is crucial for breaking the cycle of segregation and helping people reach their full potential.