The K-Shaped economic theory has become an increasingly popular way to characterize inequality in the economy today. The term gained prominence during the pandemic, essentially saying that the economic recovery from COVID was unequal and split along economic lines.

According to its proponents, that’s led to a rise in inequality, with many still struggling to regain their economic footing while people at the top are doing better than ever.

For more on why the economy is still trending in that direction five years later, “Marketplace Morning Report” host David Brancaccio spoke to Peter Atwater, who teaches at the College of William and Mary and conducts research in behavioral economics. Atwater was also one of the economists who first helped popularize the term in the doldrums of the pandemic. The following is an edited transcript of their conversation:

David Brancaccio: I mean, it's radio, so we don't have a big letter "K" as a prop right in front of us, but if we place a "K" in our mind's eye, you hope the metaphor of K helps us see a kind of graph? Explain the metaphor.

Peter Atwater: Yeah, I think when most people think of the letter K and the K-shaped economy, they think of it in financial terms. But its genesis really had to do with a divergence in confidence that I first saw during COVID, where those who could work from home — principally white-collar workers — their confidence quickly recovered. Meanwhile, blue-collar workers, hospital workers, those whose jobs required that they be out in the real world — and they're the arm of the K — I could watch as their confidence continued to decline. And from that, because I believe economic activity follows how we feel, I anticipated that the economy would begin to bifurcate, that there would be two tracks: one for those at the top, and one for those at the bottom.

Brancaccio: Yeah, we just switched from COVID times to contemporary times. It does make sense to you, Peter, here in late 2025, that your K metaphor is back in force?

Atwater: Yeah, it matters to me in two directions. One, we've seen extraordinary financial market performance. We've seen the value of homes remain robust and grow. For those with investable assets, their trajectory has continued upward. Meanwhile, we're seeing for those at the bottom of the economy deterioration. They're later in their payments to their landlord, and they've experienced enormous food inflation, that the cost of living for those at the bottom has added additional weight. I think of those at the bottom as experiencing this heavy stack of vulnerability, where they feel uncertain and powerless in multiple dimensions at once today.

Brancaccio: It must drive you crazy when you see people spend too much time obsessing over the latest change in gross domestic product or where the stock market went over the last month. That's not necessarily capturing the reality of a portion of people in this country.

Atwater: No, it's not, and it's an increasingly large portion. If we think about it, one in eight Americans is reliant on SNAP payments. I think we should all be concerned about this divide that is now so obvious and transparent and extreme that those at the bottom are intensely aware of the overabundance that exists above them, and I'm not sure those above really have any appreciation for what's happening below the surface.