K-Shaped Recovery Title Image

Personal note: This K-Shaped Recovery discussion is a deep dive and somewhat lengthy. But, we feel the issue is critical and explains both the work the Foundation and others have prioritized to date and where we see the needs emerging as we recover, rebuild, and reimagine our communities. 

Since the pandemic began, there’s been lots of speculation about how our economy – and communities – will emerge from it. Economists describe the various ‘recovery curves’ that have existed for some time.

These include :

  • Z-Shaped (optimistic, downturn, bounces back to pre-crisis growth)
  • V-Shaped (optimistic: steep decline, quick recovery)
  • U-Shaped (somewhat pessimistic: the period between decline and recovery)
  • W-Shaped (pessimistic: recovery, second decline)
  • L-shaped (most pessimistic: extended downturn)

As we move from pandemic relief efforts to rebuilding, a new curve has entered into this economic lexicon that we should pay attention to:
the K-Shaped recovery curve.

What is a K-Shaped Recovery?

K-Shaped Recovery Graphic

Graphic Text Source: Moody’s Analytics

In a K-Shaped recovery, “the performance of different parts of the economy diverges like the arms of the letter ‘K'”; the economic resurgence we expect to take place benefits only portions of the overall economy and population. The economic divide that existed before the pandemic also worsens, and the divergence between two groupings expands.

In the downward arm of the K, “groups structurally disadvantaged pre-pandemic will be at risk of missing opportunities and pathways in the economic recovery process – freezing them out of today’s and tomorrow’s economy.” These include small- and mid-sized businesses and low- and middle-income earners.

In the upward arm of the K, we have groups represented by large companies and corporations and high-income earners. This segment will see the immediate economic benefits of the recovery, which will further exacerbate the inequalities that predated the pandemic. Another more troubling situation is also emerging. As our attention turns to a possible increase in inflation, we should keep in mind that low-income earners will bear higher costs on consumer goods first (items like gasoline and food), putting even more pressure on meager financial resources.

How This K-Shaped Recovery Impacts Our Region

Admittedly, things were not great for some segments of our communities before the pandemic. We’ve been confronting issues around affordability, housing, long commutes, and uncertainty about job opportunities for quite some time. I went back to review Joint Venture Silicon Valley’s 2020 Silicon Valley Index, which was published February 12, 2020 – just 33 days before the entire Bay Area went into lockdown, remote work, and distance learning – to refresh my memory.

At that time, the Index pointed out that Silicon Valley had “logged nine continuous years of expansion since the epic recession of 2008” and that the Bay Area had added more than 800,000 jobs. While we celebrated the economic expansion, job growth, new companies, and growth in venture capital, local inequities were getting worse.

The report further noted that “income inequality [was] at a historic high,” with 13% of households accounting for more than 75% of the region’s wealth. Home costs remained the highest in the nation, and housing for low and medium-income earners as well as first-time buyers and renters remained scarce. “Thirteen percent of the region’s households [had] more than $1 million in net assets, while 37 percent [had] less than $25,000 in savings.”

A month later, economic activity came to a standstill. Restaurants and other services suffered, the economy tanked, people became sick with some dying, unemployment soared, and lines for food and other essentials stretched available resources to the brink. And inequities became even more pronounced.

A year later, the 2021 Silicon Valley Index reflected that “the rich kept getting richer…while the poor are dying.” It explained that while many could shift to remote work, unemployment in service and public-facing sectors jumped to 30%. Moratoriums on evictions prevented a jump in homelessness; although that still seems like a ticking bomb, we seem to be staving off an inevitable result. The Index stated that “an estimated 197,000 households remained at risk of rent or mortgage nonpayment at the end of 2020.”

Looking Forward: Why Should We Care?

Today, the pandemic seems more under control, with vaccinations underway and economic figures rebounding. Stock indices (certainly not a measure of the economy overall) have recovered and passed previous high-water levels. And yet, Bloomberg Economics, citing the Federal Reserve, stated, “the richest 10% of households captured 70% of wealth created in 2020…while the bottom half got just 4%.”

Clearly, for those in the low- and middle-income brackets who faced significant challenges and anxiety before the pandemic, this economic resurgence is not benefiting them.

The fundamental challenges many of our community members faced before the pandemic haven’t disappeared. Some are still on the knife’s edge where one slip (a missed payment, a temporary loss of employment) can rip away an entire life. The anxiety and stress that comes with living in the Bay Area remain strong – affordable housing stock, whether to own or rent, is still in short supply, and as the economy rebounds, commute times will increase again, too.

LACF addressed this topic in our recent Community Conversations webinar, What Does a K-Shaped Recovery Mean for Our Community? Three community leaders participated: Catherine Crystal Foster, CEO, and co-founder of Magnify Community; Ellen Kamei, Mayor, City of Mountain View; and Maria Marroquin, Executive Director of the Day Worker Center of Mountain View.

Each brought their unique perspectives to the challenges facing those most impacted by this recovery model, with the conversation focused on how the three sectors – philanthropy, civic, and nonprofit – worked together before and during the pandemic. And, they were unanimous in one crucial area – without our help, the challenges many of our fellow community members were facing pre-pandemic will continue to become direr.

As the discussion concluded, several compelling points emerged among the panelists. Maria passionately summarized these points when she underscored the need for collaboration, connection, and volunteerism in our community. But, she also invited everyone to think out of the box, saying that “we have an opportunity not to go back to ‘normal,’ which in reality is not normal.”

Long-standing relationships between the three sectors will allow us to address immediate needs. Reimagining how our community will recover, i.e., bringing about systemic change for critical issues, including displacement of community residents, will help us recover more equitably and establish a new normal. We need philanthropic and government resources and an appetite for – and funding to – invest in existing and new approaches.

As we address the realities of a K-Shaped recovery, our moment to rebuild appears to have arrived. More importantly, our moment to reimagine how we live, overcome inequities, and support those most in need has also come.

Watch the webinar: What Does a K-Shaped Recovery Mean for Our Community?

Links posted during the webinar:

Several links were posted in the chat during the webinar and are hard to see in the replay. Below are the key ones mentioned:

Homeless / Housing:

  • California Department of Housing and Community Development Homekey
  • Lifemoves Homekey

Support of Undocumented Residents:

Local Mentoring Efforts:

Further Reading:

What do you think about this blog? Please feel free to share your thoughts directly with Adin Miller.

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