K-Shaped Recovery A K-shaped recovery occurs when after a market recession, different parts of the economy recover at different speeds, times, or scales. This is the opposite of an even, uniform recovery across sectors, industries, or groups of people. A K-shaped recovery can also have bigger impacts by changing the structures of an economy as the economic outcomes will now be different as compared to before or after the recessions. The reason behind this naming is the fact that the path of different parts of the economy when charted together may diverge, resembling the two arms of the letter K. The term K-shaped recovery rose in popularity in 2020 as the U.S. went into a sharp recession due to the pandemic.
What makes a K-shaped recovery different is that while some parts of the economy may experience a booming recovery immediately after a recession, others may remain in no growth or even continue to decline. Or in other words, some industries quickly return to strong growth in output while others see declining activity or some types of asset values rise while others continue to fall. There are several reasons why one part of the economy might do better than the other. First, a K-shaped recovery can reflect creative destruction in an economy as described by economist Josef Schumpeter, which is when new technologies and industries replace older technologies and industries over the course of a recession. Second, it can reflect on how a government responds to a recession in terms of the industries it decides to give a loan or stimulus cheques to, which can benefit some parts of the economy more than others. Lastly, it can simply reflect how big of an impact the recession had on different parts of the economy in the first place, especially if the cause behind it is something long-lasting such as Covid 19. An example of a K-shaped recovery in today’s environment could be gym subscription services and media subscription services such as Netflix. Due to the pandemic, people were limited as to where they could work out, causing them to cancel their gym memberships as they were no longer using them. In return, this caused a vast number of them to buy a TV-based subscription as they were spending more time indoors and needed something to keep them entertained. This in return caused a K-shaped recovery between media platforms and gym industries. However, the same thing can be said today but in the opposite way. As gyms recover from the pandemic and go back to their usual schedule, their memberships are also increasing. On the other hand, however, the media platforms are doing poorly as their members are decreasing day by day