The rich get richer, the poor have no way out? The United States is fully trapped in a K-shaped economic model.

From corporate executives to Wall Street analysts, and even officials from The Federal Reserve (FED), the term K-Shaped Economy ( K型經濟 ) is rapidly gaining popularity. But what exactly is a K-shaped economy? In short, the upper half of the letter K symbolizes the wealth and income of high-income groups continuing to rise; while the lower half represents low-income families facing dual pressures of stagnant income and soaring prices, making life increasingly difficult.

The term K-shaped has gained prominence as it helps explain a particularly tumultuous and complex period in the U.S. economy. Economic growth appears robust, yet hiring is sluggish, and the unemployment rate has slightly increased. Overall consumer spending continues to grow, but public confidence in the U.S. is declining. Data center construction related to artificial intelligence is thriving, while factories are laying off workers and housing sales are weak. Despite a slowdown in wage growth, the stock market remains near historical highs.

At the same time, the “K-shaped economy” also reflects people's ongoing concerns about the cost of living, which is particularly important for middle- and low-income families. The persistent issue of inflation has once again drawn political attention. Previously, voters' anger over high rents, grocery prices, and the cost of imported goods helped the Democratic Party win several high-profile elections last month. The lower-income population is bearing the cumulative effects of rising prices, while at the same time, the upper-income individuals are benefiting from asset appreciation, according to Peter Atwater ( from the College of William & Mary.

K-type non-L type, U type or V type

Peter Atwater popularized the term “K-shaped economy” after seeing it appear on social media during the pandemic. At that time, other economists were discussing whether the economic recession triggered by the COVID-19 pandemic in 2020 should be described with different letters, such as a “V-shaped recovery” or a “U-shaped recovery”. Was it a sharp decline followed by a quick rebound? Or a slower recovery? Or worse yet, an “L-shaped recovery”, which implies long-term stagnation after the recession.

At that time, it seemed that everyone was competing to use different letters, but for Atwater, the most reasonable letter was K. K reflected the starkly different fates of white-collar professionals, with those still employed and those working from home, while at the same time, massive layoffs in factories, restaurants, and entertainment venues pushed the unemployment rate to nearly 15%.

The wealth gap in American society is extremely uneven.

After the pandemic, the phenomenon of economic inequality in American society saw a reversal. With the economy reopening and demand surging, companies significantly raised salaries for the blue-collar workforce. Many companies, restaurants, hotels, and entertainment venues faced labor shortages and quickly expanded their recruitment efforts. According to research from the Federal Reserve Bank of Minneapolis, in 2023 and 2024, the annual wage growth rate for the lowest-earning quarter of workers, adjusted for inflation, was 3.9%, higher than the 3.1% for the highest-earning quarter of workers.

Dario Perkins, an economist at TSLombard, stated that after experiencing two years of economic bottoming out, the talk of a K-shaped recovery had disappeared. However, since then, the economy has cooled again, and he has mentioned the K-shaped recovery once more.

However, this year, the growth of wages adjusted for inflation has slowed down, and the number of hires has also decreased, with a more significant decline among low-income Americans. The Minneapolis Federal Reserve Bank found that their annual wage growth rate has plummeted to just 1.5%, lower than the 2.4% of the top quarter of income earners. The slowdown in income growth has led to a decrease in the purchasing power of many low-income workers. According to data from the American Bankers Association based on its credit and debit card customers, expenditures for high-income households increased by 2.7% year-on-year in October, while expenditures for low-income groups only increased by 0.7%.

A study by the Boston Federal Reserve Bank in August found that in recent years, consumer spending has primarily been driven by wealthy households, while credit card debt among middle- and low-income Americans has continued to rise, despite a decline in their spending.

High-income consumers drive spending growth

After the spending growth levels were similar in 2023 and 2024, this year's spending growth has shown divergence. The latest data indicates that spending in October, categorized by income levels, has grown compared to the same period last year.

Companies are paying attention to the changes in consumer economic models.

Business executives are closely monitoring the K-shaped economic trend, and in some cases, they are adjusting their business direction to respond to this change. They are looking for ways to sell more high-priced goods to wealthy consumers while also downsizing packaging and taking other measures to attract economically challenged consumers. Coca-Cola's COO, Henrique Braun, stated in late October that the company is pursuing both “affordability” and “premiumization” simultaneously. The company is generating more profit from premium products such as Smartwater and Fairlife filtered milk while also launching mini-can products for consumers looking to save money. Braun noted that Coca-Cola continues to see differences in consumption between income groups, and last month during a call with analysts, he mentioned that low- and middle-income consumers are still facing pressure.

Delta Air Lines CEO Ed Bastian ) stated in October that first-class and business-class sales have been the main drivers of the company's revenue and profit growth, while low-income consumers are clearly facing difficulties.

Best Buy CEO Corie Barry ( said on Tuesday that the top 40% of earners in the U.S. contribute two-thirds of consumer spending, while the remaining 60% of consumers focus on finding the best prices and are more dependent on a healthy job market, particularly needing to observe how the employment situation of those living paycheck to paycheck will continue to change.

Artificial intelligence has not created more job opportunities.

The massive investment in AI data centers and computing power has also driven the K-shaped economy, boosting the stock prices of the so-called “seven giants” companies, which are competing to build artificial intelligence infrastructure. However, so far, this has not created more job opportunities or increased the income of those who do not hold stocks.

Atwater stated that at the highest level, the economy seems to be a relatively closed system composed of artificial intelligence, the stock market, and the life experiences of the wealthy, and is largely closed off from benefiting the lower classes.

Driven by the significant increase in stock prices of companies like Google, Amazon, Nvidia, and Microsoft, the stock market has risen nearly 15% this year. However, according to data from The Federal Reserve (FED), the wealthiest 10% of Americans own about 87% of the stock market, while the poorest 50% own only 1.1%.

Many economists are concerned that economic growth driven primarily by the wealthiest individuals is unsustainable. Perkins pointed out that if layoffs worsen and the unemployment rate rises, middle- and low-income Americans may significantly cut back on spending. Revenues for companies like Apple and Amazon will decline. Advertising revenue is the lifeblood for companies like Google and Facebook's parent company Meta, but during economic downturns, advertising revenue usually drops sharply. He stated that such a cycle could even force the “Seven Giants” to cut back on artificial intelligence investments, leading to an economic recession, which would effectively pull down the top of the K-shaped curve.

However, Perkins believes that another scenario is more likely: According to the Trump administration's budget proposal, many American families will receive larger tax refunds early next year. Moreover, Trump is likely to appoint a new Federal Reserve (FED) chairman before May next year, and this new chairman is more likely to lower interest rates. Lowering borrowing costs could accelerate economic growth and wage increases, but it could also exacerbate inflation.

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