The biggest economic buzzword of the last few years is "K-shaped," but the article argues that label misses the real story: a "premium economy" economy built on widening inequality, rising costs, and consumers forced to trade up only where they can. CEOs, economists and lawmakers keep talking about divergence between the haves and have-nots, while low-income households absorb the worst of it, especially as the war in Iran squeezes people who spend the largest portion of their income on gas and necessities.
Who Pays for the Upside
More Americans have left the cramped, no-frills service of life in basic economy and moved up to premium class. They can afford nicer flights, better groceries and fancier experiences, but cannot reach the high-touch, hot towel service of home ownership and retirement in the next class. That is the hierarchy in plain sight: some people get upgraded snacks and legroom, while the basic needs of housing and retirement keep slipping away.
Despite a growing chunk of people entering the ranks of the upper middle class and even becoming millionaires, they feel like they’re falling behind because owning a home has drifted out of reach and retiring like the Baby Boomers seems to be in jeopardy. People are instead trading up where they can, spending rising wages on smaller, attainable perks they can afford in premium class. This shift has punished companies competing entirely on price, such as Spirit Airlines and Dollar General, while lifting the likes of Walmart and United Airlines that consumers perceive as higher quality.
Last year, Delta and United accounted for more than 90% of the airline industry’s profits. Simeon Siegel, a retail analyst at Guggenheim Partners, said, "People have been waiting to call the death of consumer, but the consumer is still spending." He added, "It’s much easier to label everything as a K-shaped economy."
The Numbers Behind the Split
The upper-middle class grew from 10% of families in 1979 to 31% in 2024, and this group’s share of income also doubled, according to recent research from the American Enterprise Institute. A family of three earning $133,000 to $400,000 per year was defined as upper-middle class. Meanwhile, the proportion of families classified as poor and lower-middle class also fell over the past five decades. Scott Winship, a senior fellow at the American Enterprise Institute and co-author of the study, said, "The whole distribution has moved up." He added, "It undercuts the idea that there’s hollowing out of the middle class."
Nearly 40% of Americans do not own their home, so they missed out on soaring home values after the pandemic. Home prices have since ballooned to five times the average median income, trapping people in place. The new members of the upper-middle class are redirecting their higher wages to spending on the products and services they can afford. Travel, concerts and other fun activities have replaced home ownership in the "premium economy" economy.
Retail sales have also climbed for three consecutive months, bolstered by a healthy labor market and higher tax refunds. Ameriprise Financial chief market strategist Anthony Saglimbene said in a note to clients last week, "The consumer is still spending and working." He added, "If inflation pressures ease at some point, the ‘K-shape’ in the economy could begin to flatten."
What the Market Calls Recovery
This summer’s travel season is expected to surpass the last two, according to a recent Bank of America survey, and only roughly 10% of survey respondents are considering canceling their trip over high gas prices. This economically-mobile group is also upgrading airlines, stores and restaurants. The people at the bottom are still paying more for gas and necessities, while the people with enough room in their budgets are being courted with better service and branded comfort.
Spirit Airlines shut down its operations in part because many of its customers grew willing to pay $30 or $40 more for a little extra legroom, free snacks and better service at larger carriers like United and Delta. Walmart has also peeled off lower-income customers from competitors like Dollar General. The two retailers share customers and have thousands of stores located close to one other. But Walmart has upgraded in recent years — cleaning up stores, sharpening prices and adding speedy curbside pickup and home delivery — and this strategy helped it grab market share from Dollar General.
Hilton expects its "premium economy" hotel brands such as Spark by Hilton to grow in the coming years. Hilton CEO Chris Nassetta recently predicted the U.S. economy will enter a "C-shaped" phase in the next few years, where consumer spending is more evenly balanced across income levels. Lower inflation and interest rates and AI investments will eventually help low and middle-income consumers gain spending power and flatten the K-shape, he said. "You are going to see this convergence."
The language of convergence does a lot of work for the people at the top. The article’s own facts show a system where home ownership is out of reach for nearly 40% of Americans, where prices have ballooned to five times the average median income, and where companies profit by segmenting people into tiers of access. The premium economy may sound like a nicer seat, but it is still a seat in a system where the bosses decide who gets comfort, who gets squeezed, and who gets left standing at the gate.