The 'Fear of R' Hitting the Rich Even Harder

Deepening 'Rich Recession'

An analysis has emerged indicating that the phenomenon of ‘Richcession,’ where the fear of economic recession hits high-income earners harder, is becoming more pronounced. Due to layoffs and asset declines sweeping through Big Tech and Wall Street, the pain experienced by the wealthy is increasing. As economic uncertainty persists and corporate tightening trends continue for the foreseeable future, the fear of ‘R (Richcession)’ is also expected to persist.

[Image source=AP Yonhap News]

On the 4th (local time), the Wall Street Journal (WSJ) reported that despite optimism that the U.S. economy will not enter a recession phase, fears of a Richcession affecting high-income earners are growing. The neologism Richcession, combining Rich and Recession, refers to a situation where the wealthy suffer relatively greater pain from an economic downturn than the general public.

A wave of layoffs has struck some high-paying industries such as Silicon Valley and Wall Street, suddenly impacting high-income earners. From the end of last year through the first half of this year, major companies including Big Tech firms like Amazon, Facebook, and Microsoft (MS), as well as large investment banks such as Goldman Sachs and Morgan Stanley, have been implementing successive layoffs. Traditional manufacturers like Ford Motor Company have also carried out mass layoffs in certain high-wage positions such as engineering. Employees at these companies were earning an average annual salary of $296,320 (based on last year’s figures, approximately 385 million KRW) or more.

According to a recent report from Bank of America, the number of unemployment benefit claims filed by high-income workers earning over $125,000 (about 160 million KRW) annually increased by 40% in April compared to the same month last year. This is more than five times the number of claims filed by low-income workers earning less than $50,000 (about 65 million KRW) annually.

The wage growth rate for high-income earners has also slowed compared to that of low-income earners. According to the Federal Reserve Bank of Atlanta, the average monthly wage growth rate over the past 12 months for workers in the bottom 25% income bracket was 6.8%, while the wage growth rate for those in the top 25% was lower at 5.6%. WSJ reported, "Given the current favorable labor market conditions, these high-income workers will likely not face significant difficulties finding new jobs, but their wage levels will be much lower than before."

Bonuses and dividend income have also decreased. The average bonus paid to Wall Street employees last year was $176,700, down 26% from the previous year. The growth rate of returns on held assets such as dividends was 9%, which did not keep pace with inflation.

High-income earners facing the Richcession are cutting back on spending. Bank of America reported that in April, credit and debit card spending on discretionary items by high-income households decreased compared to the same month last year, while spending by low- and middle-income households increased. In particular, as the financial situation of young high-income earners who had driven luxury consumption worsened, luxury spending sharply slowed.

Experts warn that the Richcession could become a hidden threat to the U.S. economy as it impacts consumption. David Tinsley, Chief Economist at the Bank of America Institute, pointed out, "Since households in the top 40% of income account for more than 60% of total spending, the Richcession could act as a drag on the overall U.S. economy."

This content was produced with the assistance of AI translation services.