The K-shaped economic divide might be narrowing

For years, the economy has looked K-shaped. There's new evidence that some of that divide is beginning to narrow.

The wage-growth gap between lower- and middle-income workers has disappeared — with pay gains among lower-income workers nearly matching those of their higher-income counterparts.
Spending growth among lower- and higher-income households is the most similar in years.

Why it matters: A resilient labor market is chipping away at one dimension of the K-shaped economy, even as the wealth divide remains firmly intact.

Line chart of after-tax wage growth by income group (Lower blue, Middle red, Higher orange) from Jan 2023 to Jan 2026; June shows lower-income at 4.1% YoY, above middle at 3.4%. — Source: Bank of America Institute

By the numbers: Bank of America Institute, drawing on anonymized customer deposit account data, estimates that lower-income households saw after-tax wage growth accelerate to 4.1% in June, up from 2.9% in May.

That compared with 3.4% for middle-income households and 4.2% for higher-income households — the narrowest divide between low-income workers and their higher-earning counterparts in years.

PNC, using its own customer data, says the spending gap between lower- and higher-income households is the smallest in three years.

The firm's senior economist previewed the June data on X, noting that the spending gap — excluding spending on gasoline — narrowed even further last month.

The intrigue: Bank of America attributes the wage convergence to stronger hiring and job-switching among lower-income workers, while PNC says healthier labor market fundamentals are increasingly underpinning consumer spending.

BofA cautions that part of the acceleration may be mechanical rather than economic, if lower- and middle-income workers adjusted their tax withholdings to reflect changes under the One Big, Beautiful Bill Act.

The bottom line: The "K" hasn't vanished. Stocks, home equity and other gains still accrue overwhelmingly to affluent households, while lower-income workers have not felt a similar flush of wealth from the housing or stock market booms.