What is K-Shaped Recovery?

About K-Shaped Recovery:

• A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.
• It leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession. 
• This type of recovery is called K-shaped because the paths of different parts of the economy, when charted together, may diverge, resembling the two arms of the Roman letter "K."
• The portion of the economy that recovers quickly is represented by the upper part of the K, while the lower part represents those groups that recover more slowly.
• Reasons:
  • K-shaped recoveries are generally caused by disparities that existed before the recession or by a recession that impacts populations and groups differently.
  • It is possible due to the creative destruction of old industries due to the development of new industries and technologies during the recession.
  • Government strategies like monetary and fiscal policies used to combat the recession can lead to a K-shaped recovery.  Due to the nature of the economic policies, certain industries will benefit more than others. 
  • Due to the nature of the recession, it can exert a unique impact on different parts of the economy, especially when a recession is coupled with a negative real economic shock that results in a lasting negative impact on certain parts of the economy.
• Example: During the COVID-19 pandemic, North America saw a K-shaped recovery where the richer individuals and industries recovered faster compared to the poor.