A K-shaped recovery is still crushing America’s working class
Economic pain in the U.S. is not evenly distributed. Once again, low-income Americans are being squeezed from both sides — falling behind on wages while facing higher inflation — reinforcing the divide between economic winners and losers.
In a recent Bloomberg newsletter, John Authers pointed to the persistence of a K-shaped economy, in which higher-income households continue to pull ahead while lower-income earners struggle to keep pace as prices rise faster than their paychecks.
Two data points highlighted by Lisa Abramowicz, co-host of Bloomberg Surveillance, stand out in particular.
Wealthier Americans are receiving larger pay increases, while lower-income workers are seeing more modest gains. At the same time, inflation is hitting lower-income households harder because they spend a greater share of their income on essentials such as food, rent, and energy.
“Low-income earners in the U.S. are getting squeezed on both sides,” Abramowicz wrote. “They’re getting smaller pay raises than high-income earners, and they’re experiencing inflation much more acutely.”
Two sobering charts from @johnauthers on how low-income earners in the US are getting squeezed on both sides. They're getting smaller pay raises than high-income earners, and they're experiencing inflation much more acutely. https://t.co/hrntLd6tXl pic.twitter.com/F0DewmjJWn
undefined Lisa Abramowicz (@lisaabramowicz1) January 8, 2026
The contrast is especially striking given the post-pandemic surge in wages, when employers competing for workers drove pay higher and many Americans briefly felt better off.
However, data from the U.S. Census Bureau shows that while top earners posted substantial income gains, many middle- and lower-income households saw inflation erode much of that progress between 2019 and 2024.
It wasn’t until 2024 that inflation-adjusted income for the average U.S. household returned to its 2019 level, underscoring how prolonged the recovery has been for much of the population.
The core issue is that wage growth is often the only protection workers have against rising prices. When pay increases are uneven — and inflation remains elevated for necessities — inequality widens, particularly for households that lack financial assets to cushion the blow.
Inflation continues to bite
While Americans are often encouraged to focus on headline measures such as the Consumer Price Index (CPI), those figures don’t capture the full impact of inflation on household budgets. CPI tracks changes in a fixed basket of goods and services and is typically reported on a year-over-year basis.
As a result, even though inflation has slowed compared with last year, the cumulative effect of price increases since the pandemic remains significant — and is what many households continue to feel most acutely.
Overall prices have risen by roughly 25% since January 2020, even using CPI data. That increase is more than double the cumulative inflation recorded in the five years preceding the pandemic.
As a result, “the cost of living still feels like it’s rising for households who are now paying a lot more for food, electricity and housing than they were for several years before inflation shot up,” Atsi Sheth, chief credit officer at Moody’s Ratings, told CNBC.