Meet the ‘K-shaped’ recession, where professional workers are largely fine and everyone else is doing awful

New york closed restaurant
A closed sign in a restaurant during the coronavirus pandemic in New York on April 16, 2020.
  • Joe Biden said in a speech last Friday that he blames Trump's failed leadership for allowing for a "K-shaped" economic recovery, where high earners are faring better than low-wage workers. 
  • Industries like technology, retail, and software services have largely recovered and begun rehiring, while travel, entertainment, hospitality, and food services have continued to decline past March levels.
  • The result is that low-wage jobs like restaurant staff, transportation workers, and cleaners are least likely to come back.
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Since it became obvious the coronavirus pandemic would create a recession, economists have debated the "shape" of it, with big implications for the future of the economy. Would it be a "V" shape, with a rapid recovery, a "U" shape, with a softer recovery, or the dreaded "L" shape, with no recovery at all?

Joe Biden weighed in on the matter in a speech last Friday, blaming President Trump for creating an unusual "K shape." He said many Americans thought the country would bounce back economically within months of March's record job losses, but Trump's leadership botched that recovery. 

"As a result, economists are starting to call this recession a K-shaped recession, which is a fancy phrase for everything that's wrong with Trump's presidency," Biden said. "What 'K' means is those at the top are seeing things go up, and those are the middle and below are seeing things go down and get worse."

The economists and pundits Biden referred to have surmised the economic recovery is taking the shape of a "K" — allowing for those at the top to prosper while sending working class Americans into further debt. 

Here's what the "K-shaped" recovery means, and how that impacts jobs and economic inequality. 

What is a 'K' shaped recovery?

The US entered a recession in February, per the National Bureau of Economic Research, ending a record 128-month economic expansion. 

Economists and analysts use letters like "V", "L", and "I" to describe their projections for the length of the recession and potential recovery, Business Insider's Ben Winck reported.

A "V-shaped" recovery, for instance, is the most optimistic, as it suggests economic spending and employment will rapidly decline, but quickly pick back up like a "V." A "U" shape is similar but suggest the period of unemployment and low economic activity will remain longer than a "V" recovery. 

"L" and "I"-shaped recovery outlooks are much more dire, suggesting the high unemployment and low spending will have other ramifications, like cause debt defaults and overwhelm health systems.

A "K-shaped" recovery is somewhere between a "V" and "L" — depending on who you are. Industries like technology, retail, and software services have recovered from the industry and begun re-hiring, while the travel, entertainment, hospitality, and food services industries have continued to decline past March levels.

"The pandemic's uneven economic impact on industries and workers has been stark," US Chamber of Commerce president Suzanne Clark wrote in a blog post on Thursday, called "Enter the K-Shaped Recovery."

What does a 'K' shaped recovery mean for jobs?

In March, following the rapid spread of the coronavirus that prompted officials to shut down businesses and schools, the US lost 701,000 non-farm jobs and nearly 10 million people filed for jobless claims. 

While the record job loss hit the travel and hospitality industries, some economists assumed the US would bounce back once businesses reopened. The result would have resulted in a "V-shaped" recovery, where unemployment and spending drop sharply but pick back up in a short period of time. 

But the US has yet to control the virus to the point of safe reopening. The country has the most cumulative infections at more than 6 million, and a resurgence of infections have been tied to hasty restaurant and business reopening.

The stagnated recovery has meant the restaurant and travel industries have continued to decline, as more and more chains and restaurants have gone bankrupt. While job growth has picked back up slowly, the unemployment rate is still 8.4% nationally

Clark said the financial services sector has already recovered 94% of its pre-pandemic employment, while the leisure and entertainment industries have only brought back 74% of their former workers. The result is that low-wage jobs like restaurant staff, transportation workers, and cleaners are least likely to recover.

"It's no surprise at root of this is the fact that Trump has mismanaged the COVID crisis, and that's why it's a K-shaped pandemic," Joe Biden said Friday.

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