Lower-income wages are rising faster than the ‘K’ economy

Lower-income wages are rising faster than the 'K' economy. Medora Lee USA TODAY.

Key points

• "I got sick of hearing about this K-shaped economy, " Treasury Secretary Scott Bessent informed CNBC's "Squawk Box" last month.
• Lower-income households saw 4.7% annual expansion in wages last month, compared with 3.5% for higher-income households, based on the bank's consumer deposit account data.
• "The long-standing 'K' shape between higher- and lower-income households' after-tax wage growth has reversed, " wrote David Michael Tinsley, senior economist at Bank of American Institute, in a report.
• Some, like Treasury Secretary Scott Bessent, have declared the end of the K-shaped economy.
• As Elon Musk reached trillionaire status, plenty of Americans are still struggling to afford groceries or pay rent.

Lower-income wages are rising faster than the 'K' economy. Medora Lee USA TODAY. America created a trillionaire. What does that tell us?

As Elon Musk reached trillionaire status, plenty of Americans are still struggling to afford groceries or pay rent. What does that gap mean for democracy?

Wage expansion for lower-income households may be turning a corner, according to Bank of America.

Lower-income households saw 4.7% annual expansion in wages last month, compared with 3.5% for higher-income households, based on the bank's consumer deposit account data. The gains come even as the labor market cooled slightly, with annual overall payroll expansion around 1.5%, down from 1.8% in July, it stated.

Whether the reversal will last is uncertain, but after years of lagging wages and falling further behind, it seems lower-earning workers are gaining some ground, the bank remarked.

For context, a K-shaped economy represents a persistent economic divide in which higher-income Americans pull further ahead of plenty of lower-income households that struggle to keep up due to slow wage expansion and inflation. Why are wage workers gaining ground?

Lower tax withholding after the One Sizeable Beautiful Bill Act (OBBBA) may explain part of the shift, but a strongerlabor market for lower-paid workers additionally could play an notable role, Tinsley stated.

Though falling a little short of the Great Resignation of 2022, bank of America's deposit account data demonstrates the rate of job switching in July was significantly higher than in 2025.

"And when we look across customers with different pay frequencies, we find the largest year-over-year increases in the job change rate have come from those who are paid weekly" and often hourly workers, Tinsley remarked.

Since job switches usually come with a pay raise, that's "likely contributing to the recent narrowing of wage growth differences across income groups, " he remarked. If it's not K, then what is it?

"I got sick of hearing about this K-shaped economy, " Treasury Secretary Scott Bessent informed CNBC's "Squawk Box" last month. "I can say here definitively, the K-shaped economy is over."

Instead, "we're seeing more of a 'C' economy where the lower end of wage earners are finally clawing it back, " he remarked. Share your feedback to support improve our site!

Taken together, the developments around lower-income wages are rising faster than the K economy point to a situation that is still moving, and the coming days should bring more clarity.