Generally, social scientists rely on one or a combination of two approaches in explaining this phenomenon. The first approach -- the culture of poverty -- argues for the existence of a tangle of pathology which is '... capable of perpetuating itself without assistance from the white world' (Moynihan, 1967:47). All that is required to sustain this underclass culture is a welfare state. An alternative approach, equally oversimplified here, argues that the minority underclass is a product of institutionalized racism, which operates in education, the job market, the housing market, and the criminal justice system. But both the culture of poverty and racism explanations focus on categories of people rather than on communities. The culture of poverty approach emphasizes individuals and their families. The discrimination argument looks at individuals in relation to their roles in the institutions of the larger society. Neither recognizes the dynamics working within the communities in which underclass families live. I suggest here that it would be fruitful to focus on differentiation within poor minority communities. Further, since deviance and potential deviance are also part of our image of the underclass, we may borrow from the labeling perspective to understand how deviants, and by extension, underclass families come to be differentiated further in their own minority communities. A case history -- the development of Chicano youth gangs -- shows some of these processes at work, and also demonstrates that it is possible for these trends to be reversed. Thus, we can also identify some of the dynamics involved in the reabsorption of members of the underclass into a less deviant or stigmatized segment of the minority poor. (Author abstract)