Gini coefficient reaches a 60-year high, and the US economy's polarization is unfolding into historically unprecedented inequality

The U.S. economy is undergoing a profound structural transformation. According to the latest data, the Gini coefficient, which measures income inequality, has risen to its highest level in the past sixty years. Behind this figure lies a troubling reality: domestic wealth is concentrating among a small elite, while the middle class’s relative purchasing power is shrinking.

Economists generally agree that this dual-track economic model—the so-called “K-shaped economy”—has evolved from a temporary phenomenon during the pandemic into a long-term feature of the U.S. economic system. Moody’s chief economist Mark Zandi bluntly states, “This is not cyclical fluctuation but a deep, structural malady.” Meanwhile, the disparity in living standards between the wealthiest Americans and the poorest has reached an astonishing level.

Data Reveals the Reality of Wealth Gap

The rise in the Gini coefficient is just the surface; deeper economic data serve as a real warning. The latest Federal Reserve report shows that the top 1% of Americans now control nearly 32% of the nation’s total wealth, a record high; in stark contrast, the bottom 50% hold only 2.5%. What does this mean? Just 1% of the population owns wealth equivalent to more than ten times that of the bottom half combined.

Consumer behavior further illustrates this widening gap. Data from U.S. Bank tracking shows that households earning over $150,000 annually are increasing their spending on non-essential items like travel and entertainment. Airlines, for example, are launching premium business class services to cater to this affluent segment. Conversely, households earning less than $75,000 have been forced to cut back on non-essential spending, with living expenses squeezed by rent, food, and gasoline.

Even more concerning are figures from the U.S. Bureau of Labor Statistics: the share of U.S. GDP spent on employee wages has fallen to its lowest level in 75 years. This means that even as the economy grows overall, ordinary workers are receiving a smaller slice of the economic pie. Moody’s data further confirms this trend—spending by the top 20% of earners is at multi-decade highs, while the remaining 80% are spending at historic lows.

What’s more painful is that over the past six years, the spending growth of that 80% of average consumers has never kept pace with inflation. As Zandi puts it, “Since the pandemic, their standard of living has stagnated, which is truly worrying.”

The Historical Roots of the K-Shaped Economy

Many assume the K-shaped economy is a product of the pandemic crisis, but economists point to deeper historical roots. Joe Brusseiras, chief economist at tax consultancy RSM, traces the origins of economic polarization back to the Reagan era of the 1980s, when structural reforms laid the groundwork for later divergence.

The 2008 global financial crisis marked a turning point that accelerated this polarization. The collapse of the housing market wiped out millions of Americans’ wealth overnight, and soaring unemployment caused many in their prime working years to experience permanent income declines. Brusseiras recalls that the crisis shaped today’s “winner-takes-all” landscape: “If you work and live in certain sectors of the economy, compared to the struggles of the bottom markets, you’re practically living on the moon.”

Beyond the financial crisis, the decline of union power also contributed to economic divergence. The persistent decrease in unionization rates at the end of the 20th century weakened workers’ bargaining power for wages, a trend that continues to this day.

The pandemic further amplified this divide. After the stock market plummeted in 2020, the S&P 500 index surged over 130% in the following five years, with most of this stock wealth flowing to high-income groups. During the pandemic, low-income households temporarily saw wage increases due to stimulus measures and labor shortages, but these gains were short-lived. Recent data from U.S. Bank shows that high earners’ wage growth has now outpaced that of lower-income groups, with consumer spending also strengthening among the wealthy.

Warning Signs for Economic Sustainability

Looking ahead, economists’ warnings are becoming more urgent. Barry Bannister, chief stock strategist at Stifel, states that the K-shaped economic pattern “is not sustainable in the long run.” Even more concerning, Federal Reserve Chair Jerome Powell last year suggested that relying on high-income groups alone to sustain consumption “is worth deep reflection.”

Zandi explains the underlying logic behind this unsustainability: U.S. economic growth increasingly depends on a few key sectors experiencing localized booms. Healthcare remains the only sector consistently adding jobs; the rise of large-cap tech stocks has driven recent stock market performance; and consumer spending growth is primarily fueled by high-income households. “The foundation of the U.S. economy is not rock solid but rather supported by a few isolated pillars. If one collapses, the entire system risks falling apart,” Zandi warns, highlighting the fragility of the current economic structure.

Recent risks also include waves of large-scale layoffs. Data from Challenger, Gray & Christmas shows that layoffs in U.S. companies are projected to increase by over 50% in 2025 compared to the previous year, with AI technology accelerating this trend. In an already unstable labor market, a new wave of unemployment could further depress the purchasing power of middle- and low-income groups.

Policy reforms also raise concerns. Trump’s “Build Back Better Act” cuts welfare programs like Medicaid and food stamps for the poor, which could deepen economic inequality. Some policymakers are attempting to ease the burden, such as temporary caps on credit card interest rates and restrictions on institutional investors buying residential properties, but the actual impact remains limited.

Economist Brusseiras believes that to fundamentally improve this situation, the U.S. must pursue tax reform and expand social welfare programs. However, the complex political landscape and economic interests make such structural reforms seem bleak.

As the Gini coefficient continues to rise and the wealth gap widens, the U.S. economy is playing out a historic level of polarization. This is not just an economic issue but a deep political one—this “affordability crisis” for ordinary people has become a key factor shaping political agendas. Politicians are competing to promise relief from economic pressures, but under current structural constraints, how much of these promises can be fulfilled remains uncertain.