By Andrew Lepczyk, CreditUnions.com
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The “K-shaped economy” is a buzzword that has defined the post-COVID economic landscape. The term describes an environment where those who are high earners and own assets continue to do very well, whereas those on the lower rungs of the economy do worse and worse. In this way, their diverging paths create a “K shape.”
The K-shape is symbolized by different socioeconomic classes’ ability to withstand the headwinds facing the U.S. economy. For example, with inflation, higher income households tend to own assets that are inflation-resistant. Meanwhile, for lower income Americans, inflation in the cost of everyday items eats up more of their budget.
According to a 2023 report from the Federal Reserve, the more money a consumer has, the less stress they are likely to experience as a result of inflation. These diverging impacts and stress levels are present throughout the economy.
A History Of The K-Shaped Economy
For many decades following World War II, economic growth increased at roughly parallel rates for wealthy Americans and lower-income Americans. However, during the 1980s, the haves began to outpace the have-nots. Following the COVID-19 pandemic and the subsequent surge in inflation, the two halves of America began to uncouple further.
The pandemic disproportionately impacted service-oriented workers who could not work remotely, resulting in furloughs and layoffs shortly after the onset of COVID-19. Federal economic relief checks temporarily abated this impact, but then inflation disproportionately ate away at the budgets of lower-income Americans.
Although the economy on average has caught up, many Americans have been left behind, living paycheck to paycheck and relying on credit cards to make ends meet.