America's Recession or Richsession?

 An expected recession in the US will hit the better-off Americans harder than those at the bottom, the Wall Street Journal said coining the term “richcession” to describe it.

In this context, a “richsession” would make a big difference from the “usual pattern, in which the poorest are first to suffer”, noted David Philippy, a historian specialising in US economic thought at CY Cergy Paris University.

At the bottom of the wealth divide, things are looking up, surprisingly. This is because the labour market is in a “relatively healthy state for unskilled workers looking for jobs”, said Tobias Broer, an economist at the Paris School of Economics.  Companies that recruit workers at the lower end of the wage scale are having trouble finding new staff. The hospitality sector, for example, is still about one million workers short compared to February 2022. That puts workers in a strong position to negotiate pay raises.

“White-collar workers bear brunt of downturn,” proclaimed a Washington Post headline in late December. 80,000 tech employees had been laid off by the end of November. Amazon said on January 4 that it plans to shed 18,000 workers this year.

However, analysts also say it’s short-termist to focus on the labour market’s current strength for low-paid workers. Comparing tech layoffs to this dynamic labour market “makes little sense, because senior middle managers tend to remain unemployed for much less time”, said Pierre Gervais, an expert on US economic history at the Sorbonne Nouvelle University. 

Not to mention that measures like interest rate hikes to combat rampant inflation in places like the US will end up hurting the poorest the most. If central bankers and politicians want to bring inflation down towards the 2 percent target, “they’ll have to push wage increases down, and that would lead to a deteriorating labour market for low-paid workers”, Philippy said.

Another factor draining the wallets of wealthy Americans. For Wall Street, 2022 was the worst year since 2008: the S&P 500 – an index of 500 top US companies – fell by 20 percent. Tech companies were some of the worst-affected stocks on the index.

Martial Dupaigne, an economist at the Toulouse School of Economics and Paul-Valéry University in Montpellier said,
“…If there is no bounce back, this current plunge in valuations could wipe out very large sums for well-off investors in these companies,”

However, Pierre Gervais, explained that the Wall Street Journal article “doesn’t really hold water, because the whole article is aimed at contrasting the situation for middle and upper management with the situation for unskilled workers, while neither group is really rich”, Gervais said. “By contrast, the super-rich aren’t affected by the economic turmoil.”

While senior executives are the hardest-hit from economic turmoil at the moment, past precedent suggests a recession would have a domino effect, eventually hurting the economically vulnerable. “Several major recessions in the US started with stock market crashes that hit the wallets of the wealthy, including the 2008 crisis,” Gervais said.

Philippy agreed. The WSJ article “doesn’t really concern the super-rich in the US, whose income comes mainly from capital” and who are little affected by layoffs or by a temporary drop in the stock market.

Will the US see a ‘richsession’ – or will economic turmoil hit the poor hardest? (france24.com)