K-Shaped Divide Evident in Wages and Spending Across Income Levels

The post-pandemic landscape is witnessing a significant return to a K-shaped economy. This trend illustrates a divergence in wages and spending across various income levels. Increased economic opportunities are benefiting higher-income earners, while lower-income households are experiencing growing difficulties.

K-Shaped Divide in Wages and Spending

Current data highlights a stark contrast between high and low-income households. Recent reports indicate that while higher-income Americans are seeing stable wage growth, those at the lower end are struggling more than ever.

Developments from the Federal Reserve

The Federal Reserve has taken note of these changes. Minutes from their December meeting revealed a consensus among participants about the growing disparity in spending habits. Those with higher incomes are allocating more towards discretionary spending, while lower-income households are becoming increasingly sensitive to price changes.

• Higher-income households experienced approximately 3% year-over-year spending growth late in 2025.
• Lower-income households’ spending growth lagged behind, at below 1%.

Wage Growth Trends

The wage gap has continued to widen. Data from the Atlanta Fed indicates that by October 2024, wage growth for the top quarter surpassed that of the bottom quarter. This trend followed a brief spike in the lowest quartile due to unique post-pandemic recovery measures.

• Wage growth for the highest quartile remains consistently higher.
• Inflation has impeded significant earnings growth even for higher-income brackets.

Concerns from Economists

Experts are wary about the sustainability of this K-shaped economy. Gregory Daco, chief economist at EY, criticized the dependence on savings and credit among middle and lower-income households. According to him, continued K-shaped consumer spending is unsustainable.

Moreover, Joe Brusuelas, chief economist of RSM, suggested that the nation has faced K-shaped economic conditions for nearly two decades. He cited the 2008 financial crisis as a pivotal moment for creating economic inequality, which has only exacerbated in recent years.

The Wealth Disparity

The wealthiest Americans are continuing to accrue wealth at an alarming rate. Approximately half of all corporate equities and mutual funds are held by the top 1% of earners, per recent Federal Reserve data.

Looking Ahead to 2026

As we approach 2026, the consensus among economists suggests that the K-shaped economy is likely to persist. Anna Paulson of the Philadelphia Fed indicated that higher-income households would continue to benefit, primarily thriving in a strong stock market.

Brusuelas warns that without substantial policy reforms targeting inequality, the economic landscape will remain skewed towards the advantages of higher earners.

This ongoing shift in economic dynamics presents a growing challenge requiring attention from policymakers and stakeholders alike. The widening gap between income levels raises concerns about long-term stability and equity in the U.S. economy.