US economy’s K-shaped gap narrows as lower-income wages nearly match higher earners

For years, the US economic recovery looked like the letter K: one arm shooting upward for the wealthy, the other sliding down for everyone else. That split appears to be closing, with new data showing lower-income households are finally gaining ground on their higher-earning counterparts in both wages and spending.

Bank of America Institute data shows after-tax wage growth for lower-income workers reached 4.1% in June 2026. Higher-income brackets came in at 4.2%. A gap of one-tenth of a percentage point is, for all practical purposes, a rounding error.

The spending story tells the same tale

In June 2026, lower-income household spending actually outpaced higher-income household spending. The gap in discretionary spending between income levels hit its narrowest point since July 2025.

PNC’s research tells a similar story. When you strip out gasoline purchases, which can distort the picture because fuel costs eat a proportionally larger share of lower-income budgets, the spending gap between upper and lower-income households is becoming noticeably less pronounced. PNC also flagged early signs that the savings gap between income groups is starting to close.

From K-shaped to C-shaped

Treasury Secretary Scott Bessent has suggested the economy is shifting away from the K-shaped model toward what some are calling a “C-shaped” outcome, a more blended recovery where different income groups move in roughly the same direction.

Pay gains for lower-income workers have broadly kept pace with inflation since 2019, a stretch that includes the worst inflationary spike in four decades.

The wealth gap remains the elephant in the room

Wages and spending are converging. Wealth is not.

The distinction matters enormously. Wages measure what you earn this month. Wealth measures what you’ve accumulated over a lifetime, and it’s overwhelmingly driven by two asset classes: stocks and housing. Both surged in value over the past several years, disproportionately benefiting households that already owned them.

A lower-income worker whose after-tax pay grew 4.1% is doing better than they were a year ago. But if they don’t own a home or hold any equities, they missed the wealth-building engine that pushed upper-income net worth to record levels.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.