The Wealth Gap Widens: COVID-19’s K-Shaped Recovery

There has been a lot of conversation for months about how our economy is expected to recover from the coronavirus pandemic. I had said myself in the beginning that I was expecting a V-shaped recovery, meaning the economy would bounce back as quickly as it dropped.

It seems that nobody had expected the ongoing effects of the virus that have held our economy hostage since the beginning of 2020, but it’s now looking like the recovery will resemble a K more than a V.

What is a K-shaped recovery?

There is a great disparity in how individuals are being impacted by the pandemic—most notably being that some of us have been thriving while others have been devastated.

What we’re seeing now is the difference between Wall Street and Main Street. Large corporations, tech companies and chains are doing just fine at this point. Some are actually thriving and gobbling up market share. But the mom and pop shops are struggling and thousands of small and local businesses have permanently shut their doors.

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What we’re seeing is that the wealthiest Americans have been able to save money by reducing discretionary expenses, many of which normally support small businesses and their employees.

The rich get richer.

Let’s look at the business world. Business Owner X who often travels for work just canceled a dozen flights and changed those meetings to a virtual space. All of his/her employees have been successful working remotely, and the conferences that were planned for the year are now webinars. The business owner just saved thousands of dollars on flights, hotels, meals and even office utility bills. It may also have become clear that the amount of office space being paid for isn’t needed when remote work is so much cheaper.

This is the branch of the K that is thriving.

Less money for the little guy.

Because Business Owner X doesn’t need to fly to the twelve meetings, flight attendants are getting laid off. Without having to stay in hotels while traveling, the custodial team at the hotels aren’t needed anymore. Virtual conferences mean no jobs for the venue staff. And working remotely means fewer restaurant patrons keeping servers and cooks employed.

This is the branch that is hurting.

A gendered perspective.

We’ve looked at some differences in industries, but what about the difference in genders? HerMoney recently released a great article that suggests women are being impacted at a far greater rate than men.

More than half of the jobs lost due to COVID-19 were those of women because the sectors that were hit hardest—such as retail, hospitality and education—have a majority female workforce. In addition, only 47% of employed women were able to work from home (vs. 62% of men) and those who did transition to remote work saw a drop in productivity as schools and daycares shut down across the country.

What can we do?

A lot of people have realized that they lack a proper emergency fund. If you’re currently employed, putting aside enough money to cover three to six months of expenses will save you in the event of another economic downturn or if you find yourself facing a period of unemployment.

Moving forward and nearing an election, it’s safe to assume we’ll be seeing major changes in the tax code very soon. The tax code changes will likely have a large impact on retirement planning and wealth management. To that end, I’d recommend looking into planning strategies that can lower your tax bill legally. I recently published an e-book with four tax-saving suggestions that you can download for free here.

Lastly, with HSA Day coming up, now is also a perfect time to look into the tax benefits of a Health Savings Account if one is available to you. I go into more detail about HSAs in this article.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Brotman Financial Group, Inc. and BFG Financial Advisors are not affiliated with Kestra IS or Kestra AS.

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