Wealth inequality is worse than ever as K-shaped economy widens
The gap between the best-off and worst-off Americans is widening, and economists see no end to it.
The “K-shaped” economy has been on the minds of consumers, corporate leaders, policymakers and investors since the Covid pandemic dramatically reshaped Americans’ financial habits almost six years ago. Economists now warn that this two-speed economic structure is a core feature rather than a fad in the world’s largest economy.
“This is not a cyclical or temporary event,” said Mark Zandi, chief economist at Moody’s Analytics. “This is a structural and fundamental issue.”
The prevailing theory goes something like this: Encouraged by rising stocks and rising property values, high-earning consumers are splurging on vacations and premium goods. On the other hand, following inflation rates above the ideal, low-income groups are having difficulty meeting basic needs such as housing, food and gasoline.
A luxury airline seat and a value meal.
Menstrual Photography | An | Mario Tama | Getty Images
Taken together, the latest data shows that the fork is becoming more severe than ever.
expanding space
A key measure of wealth concentration called the Gini coefficient is at 60-year highs, according to a report. US Bank It was released earlier this month. That signals a decline to decades-low levels seen as pandemic-era economic stimulus took effect, said Beth Ann Bovino, the bank’s chief economist.
net worth America’s top 1% The Federal Reserve reported a record share of nearly 32% in the third quarter of 2025. By comparison, the bottom 50 percent cumulatively held 2.5 percent of total net worth.
The portion of U.S. GDP that goes to workers’ compensation has fallen to its lowest level in its more than 75-year history, according to data tracked by the Bureau of Labor Statistics. This means that the average nonfarm business worker is seeing a shrinking slice of the economy that has grown substantially over the past 15 years.
This inequality has implications for how and whether consumers spend their money.
For example, this difference may explain why fast food companies are moving toward value meals while airlines are racing to create luxury offerings. Households with incomes under $75,000 allocate less to discretionary categories like travel and experiences than in 2019, while those with incomes above $150,000 allocate more. Bank of America report published last month.
Total relative “spending” (a broad measure of spending and non-mortgage payments) of U.S. consumers in the top 20% reached decades-high levels last year, according to an analysis of data conducted by Moody’s. The other 80% fell to new lows, data shows.
Overall spending by that 80% has not exceeded inflation over the past six years, Moody’s Zandi said. That means neither economic quality of life nor spending power improved for the lion’s share of U.S. taxpayers during that time period, he said.
“There has been no change in living standards since the start of the pandemic,” Zandi said. “This is just worrying.”
‘Winner-take-all economy’
While the term “K-shape” has become popular as an explanation for the uneven economic recovery seen during the pandemic, economists say the origins of this dislocation can be traced back decades.
Such differentiated economies result from the economic restructuring seen during the crisis. Reagan administration, according to Joe Brusuelas, chief economist at tax firm RSM. Nearly two decades later, the structural break that created the K-shaped economy as it is now understood is more clearly observed following the Global Financial Crisis in the late 2000s, he said.
This is partly due to loss of wealth due to the historic collapse in the housing market, Brusuelas said. Moreover, he said, the rise in unemployment is limiting the earning potential of those without a steady job during their prime working years.
Brusuelas, who first heard the term K-shape around 2008, said the Great Recession “created the conditions for a winner-take-all economy that emerged in its aftermath.” “If you live and work and reside in certain parts of the economy, you may as well live on the dark side of the moon compared to what’s going on in the downstream market.”
Zandi pointed to the decline in unionization rates in the late 1900s as another reason for this disparity, leading to decreased bargaining power for workers.
When the pandemic hit in 2020, the stock market plummeted and unemployment soared as corporate America wondered what would happen next. But don’t compare S&P 500 It has surged more than 130% since the start of the Covid crisis in March 2020, further boosting the wealth of high-income Americans who data show are more likely to own stocks.
S&P 500 since March 2020
Low-income earners were seen as beneficiaries of pandemic stimulus programs and subsequent labor shortages that led to massive wage increases. But Bank of America found that higher-income Americans are starting to see stronger wage growth last year. The data shows that spending by top earners is also rising faster through most of 2025.
Now the poorest Americans feel increasingly excluded. The gap in confidence between the highest and lowest earners feel about their finances has reached its highest point in more than a decade in 2025, compared to five years ago, according to the University of Michigan Consumer Surveys. Michigan’s overall confidence index rebounded in January after falling near all-time lows in recent months.
This may help explain the success of politicians who focus their campaigns on affordability. This has been a winning strategy for everyone from Republican President Donald Trump to New York Mayor Zohran Mamdani, a self-described democratic socialist.
New York City Mayor-elect Zohran Mamdani (left) and U.S. Senator Bernie Sanders join striking Starbucks workers in New York City on December 1, 2025.
Angela Weiss | AFP | Getty Images
The way forward
Looking ahead, economists expect this inequality to intensify further.
Dubravko Lakos-Bujas, JPMorgan’s head of global markets strategy, said the White House’s current affordability efforts have “limited impact.” However, Lakos-Bujas said they could rise before the midterm elections in November.
This year, Trump has pushed for a temporary cap on credit card interest rates and a ban on institutional investors from buying homes. He claimed last week that there is “virtually no inflation” in the US, but recent data shows price growth remains above the 2% annual rate considered healthy by the Fed.
Beyond politics, economists worry that AI will encourage businesses to further reduce their workforces in an already shaky labor market. Layoffs to rise more than 50% in 2025 compared to previous year, consulting firm reports Challenger, Gray and Christmas reported. Amazon, Home Depot And POWER SUPPLY announced layoffs this week.
Some have warned against planning long-term economic growth through a K-shape. Barry Bannister, Stifel’s chief equity strategist, called it “economically unsustainable” in a note to clients this month. viability Fed Chairman Jerome Powell said in December that it’s “a good question” if better-off consumers account for a larger share of spending.
Federal Reserve chairman Jerome Powell speaks at a press conference following the Federal Open Markets Committee meeting at the Federal Reserve on December 10, 2025 in Washington, DC.
Chip Somodevilla | Getty Images
Ultimately, the K-shape shows how the U.S. economy is dependent on smaller powers in several key areas, Zandi said. Therefore, economic growth may be fragile or temporary, he said.
Zandi noted that healthcare is the only sector that is consistently adding jobs to the labor market. The economist pointed out that the leadership of Megacap technology has pushed the stock market higher in recent years. Consumer spending is mostly driven by the highest earners, he said.
“The economy doesn’t seem to be on a strong foundation,” Zandi said. “It’s perched on several vertical poles. If one of these poles fell, the entire economy would collapse.”
