Wealth inequality is worse than ever as the K-shaped economy expands

The gap between wealthy and wealthy Americans is widening, and economists see no end in sight.

The “K-shaped” economy has been a top concern for consumers, business leaders, policymakers and investors since the coronavirus pandemic dramatically changed Americans’ financial habits nearly six years ago. Economists are now warning that this two-speed economic structure is not a fad but a core feature of the world’s largest economy.

“This is not a cyclical or temporary phenomenon,” said Mark Zandi, chief economist at Moody’s Analytics. “This is a structural and fundamental problem.”

The general theory is as follows. High-income consumers are splurging on vacations and luxury goods, driven by rising stock holdings and rising real estate values. Meanwhile, after years of higher-than-ideal inflation, low-income people are struggling to afford necessities like housing, food and gasoline.

Taken together, recent data suggests that bifurcation is worse than ever.

A key measure of wealth concentration, known as the Gini coefficient, is at its highest level in 60 years, according to a report released earlier this month by U.S. Bank. Beth Ann Bobino, the bank’s chief economist, said it was a sign of a reversal of the decline to multi-decade lows seen amid the rollout of pandemic-era economic stimulus.

The net worth of the top 1% of Americans reached a record share of nearly 32% in the third quarter of 2025, according to a report from the US Federal Reserve. In contrast, the bottom 50% cumulatively held 2.5% of total net worth.

The share of U.S. GDP paid to workers in compensation has fallen to its lowest level in more than 75 years, according to data tracked by the Bureau of Labor Statistics. This means that the average non-agricultural worker sees an increasingly smaller part of the economy that has grown significantly over the past 15 years.

This disparity affects how and whether consumers spend their money.

For example, this disconnect could explain why airlines are competing to develop luxury products at the same time that fast-food companies rely on value meals. A report released last month by Bank of America found that households with incomes under $75,000 allocated less to discretionary categories such as travel and experiences compared to 2019, while households with incomes of $150,000 or more allocated more.

A data analysis conducted by Moody’s Analytics found that the relative total spending by the top 20% of U.S. consumers – a broad measure of spending and non-mortgage payments – reached its highest level in decades last year. The remaining 80% fell to new lows, according to the data.

For 80% of these, overall spending has not exceeded inflation over the past six years, Moody’s Zandi said. This means that neither the quality of economic life nor the spending power of the majority of U.S. taxpayers has improved over this period, he said.

“Their standard of living has not changed since the pandemic started,” Zandi said. “It’s just disconcerting.”

The term “K-shaped” has become popular as a description of the uneven economic recovery seen during the pandemic, but economists say the origins of this recovery can be traced back decades.

Joe Brusuelas, chief economist at tax firm RSM, said this type of economic divergence stems from the economic restructuring seen during the Reagan administration. Some 20 years later, he said, the structural failure that created the K-shaped economy as we now understand it was more clearly observed in the wake of the global financial crisis in the late 2000s.

Part of that is due to the loss of wealth associated with the historic housing market crash, Brusuelas said. He said the skyrocketing unemployment rate is limiting the earning potential of people who are in their prime and out of work.

Brusuelas said he first heard the term K-shaped around 2008, when the Great Recession “created the conditions for the winner-take-all economy that emerged in its aftermath.” “If you live and work and live in certain parts of the economy, you might as well live on the other side of the moon compared to what’s going on in the downmarket.”

Zandi pointed to another factor in this disconnect, given that the decline in unionization rates in the late 1900s led to a decline in workers’ bargaining power.

When the pandemic took hold in 2020, the stock market plummeted and unemployment soared as American businesses worried about what would happen next. But the benchmark S&P500 Stock prices have risen more than 130% since the coronavirus crisis began in March 2020, further boosting the wealth of high-income Americans, who data shows are more likely to own stocks.

Low-income workers were seen as beneficiaries of the pandemic stimulus programs and the resulting labor shortages that led to large wage increases. But Bank of America found that higher-income Americans started to see significant wage growth last year. For most of 2025, spending among high earners also increased at a faster pace, according to the data.

Today, the poorest Americans feel increasingly excluded. The gap in confidence between the highest and lowest income earners about how they feel about their finances will be the largest in more than a decade by 2025 compared to five years ago, according to consumer research from the University of Michigan. Michigan’s overall sentiment index rebounded in January after falling near record lows in recent months.

This helps explain the success of politicians who campaign on affordability. It’s been a winning strategy for everyone from Republican President Donald Trump to New York City Mayor Zoran Mamdani, a self-proclaimed democratic socialist.

Looking ahead, economists expect this inequality to widen further.

Some pointed to President Trump’s “One Big Beautiful Bill,” which would cut programs like Medicaid and food stamps for the poorest Americans, as a further source of disagreement. To make meaningful inroads, the U.S. needs to focus instead on tax reform and expanding the social safety net, according to RSM’s Brusuelas.

Dubravko Lakos Bujas, head of global market strategy at JPMorgan, said the current White House affordability efforts are having a “limited impact.” But Lakos-Bujas said there is a possibility of toughening the policy ahead of November’s midterm elections.

President Trump has advocated for a temporary cap on credit card interest rates and a ban on institutional investors buying homes this year. Although he claimed last week that the U.S. has “virtually no inflation,” recent data shows that inflation remains above the 2% annual rate the Fed considers healthy.

Beyond politics, economists worry that artificial intelligence will prompt companies to further cut jobs in an already volatile labor market. According to a report by consulting firm Challenger, Gray & Christmas, the number of layoffs in 2025 has jumped more than 50% compared to the previous year. Amazon, home depot and UPS This week they announced layoffs.

Some people caution against planning for long-term K-shaped economic growth. Barry Bannister, Stifel’s chief equity strategist, called the company “economically unsustainable” in a note to clients this month. Fed Chairman Jerome Powell said in December that the feasibility of wealthy consumers accounting for a large share of spending was a “good question.”

Ultimately, Zandi said, the K-shape shows that the U.S. economy relies on smaller forces in a few key areas. As a result, economic growth can feel fragile or fleeting, he said.

Zandi pointed out that health care is the only sector in the labor market that is consistently adding jobs. Economists pointed out that the stock market has been rising in recent years due to the leadership of mega-cap technology. He said consumer spending is primarily driven by high-income earners.

“I don’t think the economy is on solid footing,” Zandi said. “It’s perched on a few overhanging utility poles. If one of those poles were to fall, the entire economy would collapse.”