Published on:
An expected recession in the United States will hit the wealthiest Americans harder than those at the bottom, the Wall Street Journal said this week, coining the term “wealthcession” to describe the phenomenon. But analysts say there is reason to believe that any future recession would play out like previous ones, affecting the poorest the most.
Even though economists are not quite unanimous in anticipation of a WE recession In 2023, there is little doubt that growth will slow significantly. In this context, a “rich session” would make a big difference compared to the “usual pattern, in which the poorest are the first to suffer,” noted David Philippy, a historian specializing in American economic thought at CY Cergy Université Paris.
“White-collar workers bear the brunt of the slowdown,” proclaimed a Washington Post title at the end of December.
Recent layoffs in the tech industry add to this narrative of who is hardest hit by the slowing economy, with the washington post reporting that more than 80,000 technical employees had been laid off by the end of November. And that was before other similar announcements followed; Amazon said on Jan. 4 that it plans to lay off 18,000 workers this year.
But it should be noted that many companies announcing mass layoffs have a habit of offering their employees generous compensation. The median annual salary at Meta – Facebook’s parent company – is $295,785, while at Twitter the median annual salary is $232,626, according to the wall street journal (who is around five times the median annual income in the United States). Both companies have announced big layoffs.
The state of the stock market is another broader factor draining the wallets of wealthy Americans. For Wall Street, 2022 was the worst year since 2008: the S&P 500 – an index of the 500 major American companies – fell by 20%. Technology companies were among the hardest hit stocks in the index.
Although access to the stock market has been somewhat democratized in recent years, shareholding is still mainly the prerogative of the wealthiest, says Martial Dupaigne, economist at the Toulouse School of Economics and Paul-Valery University in Montpelier.
The current situation could therefore be particularly bad for them, continued Dupaigne. Stock prices have soared to dramatic levels during the Covid pandemic, with companies like Apple and [Google parent company] Alphabet sees its value increase by about a trillion dollars over two years. If there is no rebound, this current fall in valuations could wipe out very large sums for affluent investors in these companies,” he explained.
At the bottom of the wealth gap, things are looking up, surprisingly. Indeed, the labor market is in a “relatively healthy state for unskilled workers seeking employment,” said Tobias Broer, an economist at the Paris School of Economics.
Unlike tech giants, companies that recruit workers at the bottom of the pay scale struggle to find new employees. The hospitality sector, for example, is still short of around a million workers compared to February 2022, when Covid cases started to take off. This puts workers in a strong position to negotiate wage increases.
Indeed, the incomes of the poorest households have increased by 7% since the end of 2021, the Federal Reserve found.
A short-lived ‘rich session’?
All of these factors would make the expected recession unprecedented. But experts say the economic crisis could end up biting in the traditional way.
Some prominent non-tech companies have announced major layoffs, including Goldman Sachs. But it’s still “too early to generalize” about white-collar layoffs extrapolating from the flurry of tech announcements, Broer said.
And millionaires aren’t the only ones who own stocks. We must not forget that pension funds [such as 401Ks] They are also linked to the stock market, so if it goes down, a lot of ordinary people saving for their retirement will be affected,” observed Philippy.
Analysts also say it is short-term to focus on the current strength in the labor market for low-wage workers. Comparing tech layoffs to this buoyant labor market “makes little sense, as upper middle managers tend to be out of work much shorter,” said Pierre Gervais, an expert in American economic history at Sorbonne Nouvelle University. .
Not to mention that measures such as raising interest rates to combat runaway inflation in places like the United States will end up hurting the poorest the most. If central bankers and politicians want to bring inflation back towards the 2% target, “they will have to push wage increases down, and that would lead to a deterioration in the labor market for low-paid workers,” he said. Philippy said.
And while senior executives are the hardest hit by the economic turmoil right now, precedent suggests that a recession would have a domino effect, possibly affecting the economically vulnerable. “Several major recessions in the United States started with stock market crashes that hit the wallets of the wealthy, including the 2008 crisis,” Gervais said.
The Wall Street Journal article “doesn’t really hold water, because the whole article aims to contrast the situation of middle and senior managers with that of unskilled workers, when neither group is really rich” , said Gervais. “In contrast, the super-rich are unaffected by economic turmoil.”
Philip accepted. The WSJ article “is not really about the super-rich in the United States, whose income comes mainly from capital” and who are little affected by layoffs or a temporary stock market decline, he said. .
This article was translated from original in french.
0 Comments