The K-Shaped Recovery: A ‘V’ For Some, Not For Most
Mon, 10/12/2020 – 11:35
Economists have come up with every variation of applying a letter of the alphabet to the economic recovery. Whether it’s an “L,” a “W” or a “V,” there is a letter that suits your view. But what is a “K”-shaped recovery?
Take a closer look at the letter “K.” It’s a “V” on the top, and an inverted “V” on the bottom.
According to Investopedia:
“A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people. A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
Following the economic shutdown, much of the data shows strong signs of improvement. However, several different economic phenomena are driving a K-shaped recovery.
One of the more interesting aspects of the recovery has been that of “creative destruction:”
“Creative destruction is a concept in economics which since the 1950s has become most readily identified with economist Joseph Schumpeter. Schumpeter derived it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle.
According to Schumpeter, the ‘gale of creative destruction’ describes the ‘process of industrial mutation. The process continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one’” – Wikipedia
Industries like technology, retail, and software services are leading the way in “creative destruction.” Technology companies like Apple Inc., Alphabet Inc., and Microsoft Corp. saw earnings expand during the economic recession. General merchandise retailers such as Target, Walmart, and Costco, along with online video entertainment giants Netflix Inc., Walt Disney Co., and YouTube, made sizeable gains as the economy closed. Biotech, Pharmaceuticals, and, of course, “Work From Home” firms like Slack and Zoom blossomed with online retailers like Amazon and Shopify.
However, while the “fire of necessity” gave birth to a host of new companies, simultaneously others got lost. Travel, airlines, cruises, movie theaters, traditional retailers, and real estate remain under significant financial pressures.
The Other Side
In the bottom half of the “K” shaped recovery lies the majority of the economy. Its recovery is questionable the longer the pandemic goes on. The shift to “Work From Home” or “WFH,” along with the rise of the associated technologies, has companies questioning the need for expansive commercial offices.
WFH also requires less employment. In traditional office environments, assistants, associates, and others were previously relied on for more mundane tasks. However, in the WFH environment, those roles become less important as independent working rises.
The need for “less” during the employment recovery is very much part of the “K” shape. Yes, certainly those with skill sets are finding jobs versus those without. Importantly, employers are also finding out they can hire higher qualified talent for less money. For example, I spoke to a restaurant owner who has been hiring as the economy reopened in Texas. His experience has been an overwhelming number of applications for waitstaff, bartenders, and hosts by individuals with bachelor degrees or better.
It isn’t there aren’t jobs for those with a high-school diploma or less, individuals are just taking those jobs with greater education levels.
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