K-shaped economy
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What does the K-shaped economy mean and how does it affect inflation?
Breakfast Business with Enterprise Ireland on Newstalk.
Christmas is indeed a time of increased spending. And while higher prices affect everybody, the K-shaped economy shows inflation doesn't affect everybody equally. Austin Hughes, economist, joins me to discuss this more. Austin, the K-shaped economy, it's a phrase I've heard over and over and over again in 2025, particularly actually in the US. Can you bring us through what it means?
Yeah. Good morning, Susan. Often when we talk about the economy, we speak of the consumer or the economy, as though conditions were entirely the same right across every business and every household. And that's something you learn in basic economics, this idea of a representative agent. Now, this idea of the K economy is something a journalist actually mentioned to me about economic conditions. He said, we may all be in the same storm at the moment, but we're not all in the same boat. And the K-shaped economy is the idea that those who are towards the top of the income and asset wealth profile tend to be doing better than those at the lower end.
How does the K-shaped economy impact spending during Christmas?
And if you think about it, the top element of the K is getting increasing and spending and earning more, and the bottom end is going lower. Now, that would be particularly true of the US economy, where you have stellar sort of income and wealth growth at the top, and very limited safety in terms of social welfare supports at the bottom end. So there is that element of a divided economy in the US and a fractured society. Ireland is a lot more equal probably than most other economies, but you do have something of the same trend emerging where those who are doing well are probably doing a bit better than those who are struggling because, as you say, of the cost of living crisis. And certainly in our consumer sentiment survey, we're seeing that those who tend to be on lower incomes are saying that they will be spending less at Christmas, and those fortunate enough to be in the top 10% are saying that they will probably have more to spend this Christmas.
So it's the idea of a divided economy and two parts of the economy moving in different directions.
Well, when you talk about how much people are likely to spend at Christmas, I saw this from Moody's, Austin, that the percentage of overall spending done by the top 10% of the socioeconomic spectrum has risen from 36% to nearly half since 1989. And what does this mean then for the consumer side of the economy, whether that would have an impact on retailers, etc. ?
Yeah, well, it does mean, as I say, of this divided economy. And if you look at the Irish statistics in that regard, there's the Central Statistics Office does a study of income and living conditions. And they say that in 2023, they're the latest data we have, that the lowest 10% of households had a weekly income of €309. The middle was about €1130.
What statistics highlight the income disparity in the K-shaped economy?
And the top 10% had about €3,000 260. So they'd something like 10 and a half times the income and the spending power of the lowest 10%. And obviously, that means that if you walk down Grafton Street, you're more likely to be crushed than if you're walking down some of the streets that probably cater for the more average consumer in Ireland.
But is there an issue here too? I think that there might possibly be a silent, huge influence in the fact that we're now dealing with a massive intergenerational wealth transfer as well, Austin. Does that entrench the K-shaped economy?
Well, it does in as much as those at the top are likely to inherit more. The meek will not inherit the wealth of the Irish or other economies anytime soon. And in that regard, actually, there's some very interesting central bank numbers out in the last month or so that say the wealth of the top 10% increased by about 15%. in the year to the second quarter of this year. And that's an 87 billion increase in the wealth of the top 10% in Ireland. And if you take the bottom 50%, right, because a lot of those at the lower end aren't going to have any wealth at all, but the bottom 50%, it only increased by 6% or 7 billion.
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Chapters
6 chapters
1
What does the K-shaped economy mean and how does it affect inflation?
0:01–1:16
2
How does the K-shaped economy impact spending during Christmas?
1:16–3:19
3
What statistics highlight the income disparity in the K-shaped economy?
3:19–4:59
4
How does intergenerational wealth transfer influence the K-shaped economy?
4:59–5:28
5
What role does tax policy play in addressing economic inequality?
5:28–6:11
6
What are the implications of a divided economy on society?
6:11–6:35