Next Recession Could Hit the Rich More, Good News for Low-Wage Workers

  • The next recession could be a “rich recession,” according to the Wall Street Journal.
  • That’s because high-earners are facing layoffs, and seeing their massive stock holdings tank.
  • Meanwhile, lower earners are seeing wages grow and continued job opportunities.

As the economy continues to be in a will-they, won’t-they relationship with a recessionnumbers are showing that the possible downturn might not look like previous ones.

That’s because, as the Wall Street Journal reports, it might be a “recession.” The wealthiest Americans could be disproportionately caught in the crosshairs of mass layoffs and stock losses, leaving the lowest-wage workers to continue quitting and pushing their wages higher.

It’s no secret that the pandemic-induced recession was unevenly felt. A K-shaped recovery — where high-earning Americans saw jobs and wages grow, while the converse happened to lower-earners — began to take shape during the recession. Billionaires worldwide saw their wealth grow by 62% during the pandemic, according to an April report from Oxfam. In America, billionaires were adding trillions to their fortunes throughout the post-vaccine era, with their net worth swelling from stock gains.

But now, as the Wall Street Journal notes, things aren’t looking so rosy for the highest-earners (who, to be clear, still hold a lot more wealth than everyone else). High-earners are getting cut at companies like Meta and Twitterwhere median workers made over $200,000 in 2021. And, as Insider’s Linette Lopez reports, “The stock market — for the foreseeable future — is royally screwed.” The top 10% of Americans hold nearly 90% of all stocks in the country, a record high.

Now, real wage growth is declining rapidly for those at the top when analyzing changes in their wealth from before the pandemic over time. At the same time, the bottom 50% see their gains far outpacing the wealthiest.

According to real wealth growth data from Realtime Inequality that looks at changes each month from pre-pandemic February 2020 for adults who are at least 20 years old, the bottom 50% has seen their growth soar much higher than those part of the top 1%, top 10%, or even the middle 40%

For the bottom 50%, real wealth growth from February 2020 to September 2022 is 226.6%. For the top 1%, this growth was just 16.8%. Several months prior in December 2021, growth for the top 1% from February 2020 was 36.7% — much smaller than the just over 250% growth the bottom 50% saw.

That’s not to say that the lowest-earning Americans are doing markedly better.

Ken Kim, a senior economist at KPMG, told Insider in December that “lower-income quintiles are already feeling the brunt of” what has been for some time now elevated inflation. Kim noted that this group does not have a cushion of savings to fall back on and so their paychecks are “immediately going out to pay for necessities.”

“So there is a portion of the US consumer that is certainly not doing too well currently,” Kim said.

The bottom half of Americans hold just 2% of the country’s wealth, according to a report from the nonpartisan Congressional Budget Office, while the top 1% hold about a third. And middle-class and low-wage Americans saw a pay cut in 2021while the top 1% saw their average wages grow, according to an analysis from the left-leaning Economic Policy Institute.

To be sure, although the recession on the horizon may be considered a rich recession, that doesn’t mean it won’t affect lower-income Americans.

“I think the sad, sort of recurring truth about the US labor market is that when we have downturns the most disadvantaged people are the ones disproportionately hurt,” Nick Bunker, economic research director at Indeed Hiring Lab, previously told Insider.

“Lower income, lower wage, lower education workers, Black workers, workers of color” tend to see larger spikes in unemployment during downturns, according to Bunker.

But the labor market is booming for lower-earners. The latest data release on job openings and quits from the Bureau of Labor Statistics showed that job openings are still far outnumbered by the number of unemployed workers. At the same time, workers are happy to quit, with 2.7% of the workforce throwing in the towel in November 2022.

Quits continue to be concentrated in low-wage industries, and hires remain strong. Taken together — alongside continued wage gains for historically low-paid industries — that suggests that workers are still happily quitting for a better deal and higher wages, something that isn’t necessarily happening among the high-earners hit by a recession.

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