Give us a “K”?
Our potential economic recovery from the pandemic has taken on more hypothetical shapes than a geometry test. What started as predictions of a U-shaped or V-shaped recovery soon gave way to notions of an economic healing process that resembled a W, J, and even a Nike swoosh. But the world took notice two weeks ago when presidential candidate Joe Biden claimed the United States was experiencing a K-shaped recovery. And the recovery he described isn’t just a debate talking point — it’s perhaps the prevailing consensus among economic experts. But what makes a K-shaped recovery different? Who benefits? And what happens next? You have Q’s. The Post has A’s.
What exactly is a K-shaped recovery?
A K-shaped recovery occurs when the economy heals unevenly, and two segments of society head in opposite trajectories. While the stock market reaches all-time highs, the actual flow of goods and services that makes up the economy worsens. As one class of businesses and workers whose success is tied to the market thrives, an even larger class continues to struggle, and the gap between the “haves” and the “have-nots” widens.
But doesn’t a good stock market mean a healthy economy?
The stock market is not the economy. It’s more a representation of our wealthiest citizens’ finances — 84% of the stock market is owned by only 10% of US households. And while this inequality has been on the rise recently, the disconnect between the market and the greater economy is longstanding. Just 30 years ago, only 30% of Americans owned any stock at all.
Who benefits from a K-shaped recovery?
The finance and tech sectors: These industries are the prime beneficiaries of 2020’s stock boom after a crash in March. The finance industry has already recovered 94% of its pre-pandemic employment. And tech companies of all stripes, whether they mix with entertainment, automotive, or retail, are in a prime position to benefit from the increased emphasis on online commerce.
Those who can WFH: According to economists at the Economic Policy Institute (EPI), those who can do their jobs remotely are at a natural advantage. Remote work isn’t just better insulated from the destabilizing forces of a pandemic, it’s also the path being embraced en masse by tech companies, allowing employees to potentially save thousands of dollars in commuting, dining, and clothing costs.
And those whose work goes home: The increase in time spent housebound has been a boon for general merchandisers and retailers whose goods pertain to the home. This includes home improvement stores like Home Depot, grocers like Kroger, or general retailers like Target. Their solvency is good news not just for the corporate executives and shareholders, but also for employees who can count on relative job stability, even when WFH isn’t an option.
And who gets the downside?
Pretty much everyone else. Other industries, like hospitality, service, and restaurants, have been hammered by the pandemic and are far from WFH-friendly. These industries employ more low-wage workers whose jobs are the least likely to recover from the pandemic and account for the bulk of today’s 12.6 million unemployed Americans. And for those laid-off workers, the crisis today can be just as acute as it was in March, no matter what growth numbers in Q3 say. But the strongest proof of the K-shape at work might be the fact that 8 million people have slipped into poverty since May.
But the bad news can be misleading
The EPI notes the K-shape runs the risk of assuming most Americans are starting in the same place financially. In reality, this shape is magnifying a trend that’s been going on for decades, as the gap between the wealthy and poor in the US grows. The K-shape is less an approaching comet we can rush to avoid and more the product of long term inequities being exposed.
Is the K-shape forever?
Not necessarily. Congress still has a powerful role to play in how our economic recovery develops. A new stimulus measure could further fund PPP programs to help keep small businesses afloat and people employed. And the K-shaped model may have its limits. Experts at the Fed and EPI both believe that without more government aid, average Americans won’t be able to spend, dampening an economic recovery. Even the industries getting ahead in a K-shape need to sell their goods and services to customers, meaning a full economic recovery may eventually require another change of shape (hopefully to one that looks more like this).