The Covid recovery still has a K shape

The U.S. economy is on the mend. But the unequal — or K-shaped — nature of the recovery persists.

Economic activity is on pace to return to pre-pandemic levels by the summer, buoyed by an increase in vaccinations and government aid. The labor market is showing signs of improvement.

While those gains have been widespread, some groups — especially low-wage workers — continue to struggle.

Employment among the bottom third of earners is still down 30% from pre-pandemic levels, according to Opportunity Insights, a joint project between Harvard University and Brown University. (Such workers make less than $27,000 a year.)

By comparison, the highest-paid workers (who earn more than $60,000 a year) have fully regained their lost jobs, according to Opportunity Insights.

That slow comeback for the bottom tier is largely due to concentrated pain in industries that tend to employ low-wage workers, according to Betsey Stevenson, a professor of public policy and economics at the University of Michigan.

“We’re still not dining out as much as we previously did. We’re still not going to the gym in person as much as we did, or traveling as much as we did,” said Stevenson, a former chief economist at the U.S. Labor Department during the Obama administration.

More than 3 million leisure and hospitality jobs — at restaurants and hotels, for example — have yet to return. They account for over a third of the 8.4 million jobs yet to be regained, according to the Bureau of Labor Statistics.

Such jobs are disproportionately held by minorities and those without college degrees — meaning these groups have also continued to struggle, according to economists.

For example, the unemployment rate among Hispanic and Black workers was 7.9% and 9.6% in March, respectively. It was 5.4% for white workers.

“We welcome this [economic] progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics and other minority groups that have been especially hard hit,” Jerome Powell, chairman of the Federal Reserve, told Congress in March.

Economic recoveries tend to play out unequally in most recessions. But the Covid pandemic has been unique in how resilient certain assets have been.

Stock and home prices, for example, soared to record highs. The financial benefits have largely accrued to the white, wealthy and college-educated, who disproportionately own such assets, according to economists.

These same groups were also quick to recover their lost jobs and able to stash away money due to less spending in a shuttered economy.

The diverging nature of the recovery for those at the top and bottom led many economists to say it had a “K” shape.

“The stock market’s been appreciating; home prices have been appreciating,” Aaron Sojourner, a labor economist and associate professor at the University of Minnesota, said. “The vast majority of Americans don’t have much of that, and the benefits are very concentrated.”

The S&P 500 stock index is up roughly 46% over the past year, for example.

Whites own 89% of all stock and mutual fund shares, compared to about 1% owned by Blacks and 0.5% by Hispanics, according to Federal Reserve data. (Other groups weren’t identified.)

The dynamic is similar across wealth and education level.

Americans with a college degree own 83% of stocks and mutual funds, according to the Fed. That dwarfs the share for those with and without high-school degrees: 6.5% and 0.7%, respectively.

“The K-shaped recovery, to me that’s where there’s some truth to it,” according to Sojourner, who was a senior economist on the Council of Economic Advisers during the Obama and Trump administrations.

The K shape isn’t quite as literal as it once was. Broadly, all groups are being lifted by the improving economy, if at different speeds, economists said. However, it’s still synonymous with the recovery’s unequal brushstroke, they said.

And there will always be individual exceptions to these statistics, which portray experiences in the aggregate.

Public policy has also helped cushion the financial blow for affected families. The federal government has pumped trillions of dollars in aid to prop up households in the face of unemployment, eviction and food insecurity.

“There have been [unemployment insurance] expansions and the like, and that will have made up for significant chunks of those income losses,” said Stan Veuger, an economist at the American Enterprise Institute, a right-leaning think tank.

However, some people fall through cracks in the U.S. safety net and didn’t benefit from these expansions, he added.

The diverging experiences will likely mend as the economy improves further, economists said. However, they cautioned that the continued recovery depends largely on vaccinations and how quickly the coronavirus is tamped down.

“It is very hard to tell what’s going to happen,” Sojouner said.