By Author:
Leandro S. Pongeluppe, The Wharton School, University of Pennsylvania
Interviewers:
Peter S. Polhill, Cornell University
Bonita Das, York University
Article link: https://journals.sagepub.com/doi/full/10.1177/00018392241240469
Recent scholarly work has started to seek a deeper understanding of entrepreneurship’s role in resolving income inequality and expanding employment within disenfranchised groups (Eberhart, Barley, & Nelson, 2022; Hwang and Phillips, 2023; Waterhouse, 2024). How does your paper contribute to this growing discussion?
We have a growing community of scholars exploring these topics from different perspectives, which is really encouraging. Reflecting on the process of writing this paper, I noticed a common idea people often have: developing economically disadvantaged urban areas, like favelas, requires external intervention. This could come in the form of corporations moving in or state-led initiatives by individuals who are not part of those communities. While these approaches are important, they often overlook the fact that the true agents of change are the people who live in these communities. These individuals grew up there, understand the social dynamics and fabric, and are better positioned to identify market needs and implement solutions.
Entrepreneurship has emerged as a significant factor here. We tested its effects in the study, and it was surprising to find that entrepreneurship accounted for the most substantial job allocation compared to the control group. This underscores the potential strength of markets within these communities. While the income levels may not be high, people still have purchasing power but lack access to goods and services readily available elsewhere.
The program we studied primarily trained women, and it was fascinating to see how they identified market opportunities within their communities. Equipped with technical skills, business knowledge, and local connections, they leveraged these assets to build enterprises. I wouldn’t claim that entrepreneurship is the sole solution to social inequality—issues like poverty and inequality are multidimensional. However, entrepreneurship can provide a means for individuals to improve their incomes, employ others locally, and stimulate the local economy by utilizing their skills and understanding of community needs.
Entrepreneurship also empowers people by giving them a greater role in shaping their own futures. Instead of relying on external solutions—whether through welfare programs or companies entering their neighborhoods—these individuals can drive change themselves. Of course, this should be complemented by support structures like credit lines and public or private institutional backing, but entrepreneurship allows them to actively shape their lives and communities.
Program participants attributed stigma to their residential location, particularly at higher income levels. Can you tell us more about this process?
The stigma these individuals face is another dimension worth exploring. Initially, they are relatively sheltered within their communities and unaware of the full extent of social stigmatization. However, as they gain skills and venture out for jobs or business opportunities, they encounter significant prejudice. For example, during job recruitment processes, some were advanced to later stages but were then rejected when recruiters realized they lived in the favelas. Similarly, suppliers and clients outside the favelas often hesitated to work with them, citing safety concerns or assuming they were associated with gangs.
Yet it’s inspiring to see how resourceful they are. Many begin in a small way in the local community as a family business and hiring locals. Over time they grow their business and expand outside the community. Some have opened additional stores as part of their growth plans. I’ve interviewed entrepreneurs who developed entire delivery systems using bicycles and created innovative payment methods, such as customized credit systems for frequent customers. They advertise on Instagram and even have professional-looking websites.
However, as they climb the social ladder, their higher income levels come with increased visibility and, paradoxically, heightened prejudice. This phenomenon mirrors Plato’s allegory of the cave—stepping into the light reveals opportunities but also exposes the harsh reality of societal biases. These biases are often deeply ingrained, as people from outside the favelas stereotype residents as criminals or assume they have family ties to gangs.
The journey of climbing the social and economic ladder is universal in many ways. While it offers better income and opportunities, it also comes with psychological costs. For someone transitioning from a vulnerable state to becoming a successful entrepreneur, the contrast can be stark. They benefit from their success but also face the reality of prejudice, which can be painful to confront.
Online Appendix 11 describes program participants who started as entrepreneurs but successfully entered the formal labor market a year later. Can you tell us more about this group?
Entrepreneurship can help individuals in many ways. As I mentioned earlier, many people initially turn to entrepreneurship because they are unable to enter the formal labor market. Most entrepreneurs begin by serving their communities and involving family members, but they eventually expand their operations to reach other areas. Some individuals have exceptional vision and natural entrepreneurial talent, demonstrating remarkable skills in structuring and managing their businesses. However, many enter entrepreneurship as a “Plan B” when more stable, formal labor market opportunities are inaccessible. Even when entrepreneurship doesn’t work out, it offers valuable learning experiences, builds networks, and provides skills that can be applied in future endeavors.
Over time, however, they may begin discovering other opportunities and eventually decide to transition out of entrepreneurship. It’s important to note that not everyone aspires to be an entrepreneur. Entrepreneurship inherently involves more risks—you need to have a certain structure and bear the financial burden, often relying on personal or family resources. In contrast, the formal labor market offers greater stability and lower financial risks.
I believe that entrepreneurship equips individuals with valuable skills and networks. Over time, these assets can help them learn about new job opportunities and transition into the formal labor market. Furthermore, having experience as an entrepreneur enables them to demonstrate specific capabilities—such as problem-solving and operational skills—which can be advantageous in recruitment processes.
You utilize an abductive research approach in this project. How did you make this decision? What advice would you give to people trying to utilize this approach?
None of this was planned, to be honest. The full credit for guiding me through this process should go to the Associate Editor, Chris Rider, who was fantastic, as well as the referees and my Ph.D. advisor Anita McGahan. They played a critical role in helping me navigate the complexities of this publication. One great aspect of this journey was that all the pre-registration and documentation for the study were published in their entirety, along with the initial conceptual framework. This transparency allows others to see how the research evolved throughout the publication process.
Initially, this was a purely deductive study. It was pre-registered as a randomized controlled trial (RCT) designed to compare governance structures—public versus a combination of public and NGO-led programs—and evaluate their impact on economic and psychosocial outcomes. However, we encountered a surprising result. Based on our initial hypotheses, which were informed by discussions with my supervisor and the NGO managers. We anticipated that stigmas would decrease as participants earned more money, found jobs, and improved their social standing. Instead, we observed an unexpected increase in stigma, which was not anticipated.
During the review process, Chris, the Associate Editor, encouraged me to pivot toward an abductive approach. This allowed us to explore the surprising findings in greater depth by integrating qualitative evidence and revisiting the quantitative data. This shift opened up new opportunities to better understand the underlying phenomena. As an RCT researcher, I couldn’t change the original design or analyses. However, Chris reassured me that we would report everything as pre-registered but also investigate these surprising results abductively. This was incredibly helpful and made the study much more engaging and meaningful.
By moving back and forth between theoretical ideas, data analyses, and qualitative insights, the abductive approach allowed us to craft a richer contribution to the literature. It also felt more honest and aligned with the actual research process, avoiding practices like hypothesizing after the results are known (HARKing) or p-hacking. This approach helps to peel back the layers of complexity in the data and better capture the nuances of the findings. I strongly encourage young scholars to consider abductive methods and hope that reviewers and editors recognize their value in fostering transparency and authenticity in research.
I would also strongly encourage scholars, even those not directly collaborating with organizations, to engage in fieldwork. It’s not enough to analyze data and run regressions—you need to immerse yourself in the context, speak to people, and try to understand their lived experiences. This hands-on approach aligns with the abductive process and enriches the research in meaningful ways. Often, when I shared my findings with participants, they would respond by saying, “Of course, that’s obvious to us.” What might seem surprising in the data is often deeply intuitive to those living the reality.
As you illustrate, upward mobility for disenfranchised groups may be accompanied by stigma. How do policy makers optimize their goals of socioeconomic inclusion in a complex social environment?
That’s a very important and interesting point. Some of these discussions came up with the NGO and policymakers. As a side note, after the analysis, I conducted a cost-benefit study on the program, which didn’t make it into the paper but showed that the program is cost-efficient. The training and implementation costs were outweighed by the social and economic value it generated, based on net present value (NPV) calculations of participants’ projected income increases. This led to the program being adopted as public policy. For example, the state of São Paulo implemented it as a public initiative, targeting over 13,000 single-parent families led by women. They even bought the NGO’s methodology to expand the program.
Importantly, we observed that while entrepreneurship can generate income, it can also have unintended social and psychological effects. The NGO began exploring ways to prepare participants for these challenges, training them to better navigate potential social consequences. While we can’t immediately change societal structures, offering such support can help participants manage these challenges more effectively.
Expanding the program should also involve additional support systems. For example, access to credit lines tailored for entrepreneurs in these areas would be crucial, especially since many participants lack access to traditional banking and financial systems. The national development bank could play a role in structuring and funding these ventures. Again, we need to see these entrepreneurs as the real agents of change in their communities. They need to be empowered so that socioeconomic development will follow.
Interviewer bios:
Bonita Das is a doctoral candidate at York University, Toronto in the School of Human Resource Management. Her research focus is social networks and job search among disenfranchised groups.
Peter Polhill is a PhD student at Cornell University’s ILR School. His research interests include economic-sociology, organization theory, and entrepreneurship.