We study the emergence and persistence of urban slums in Brazil. Using data on labor markets, housing costs, and access to education, we construct a quantitative model to explore the impact of slums on the country s human capital and structural transformation. Urban slums emerge and persist due to their dual roles as intergenerational stepping stones for low-educated households and as blockades for higher-educated ones. Providing slum children access to schools in formal urban areas would have led to larger but shorter-lived slums. Improved rural schools, if available earlier during urbanization, would have vastly prevented the formation of urban slums.