The turn of the rich to drink the economic cup in the United States?

For the Wall Street Journal, the possible recession to come across the Atlantic will break the canons of the genre by hitting the wealthy classes in priority while largely sparing the most modest employees.

The economic daily even invented, Wednesday January 4, a portmanteau word to designate this phenomenon: the “richcession” (or “recession for the rich”).

If the hypothesis of a recession in the United States in 2023 is not unanimous among economists, the slowdown in growth is hardly in doubt.

In this context, the "wealthcession" scheme described by the Wall Street Journal contrasts "with the impression that we usually have in times of pre-crisis that the poorest drink first", notes David Philippy, historian of thought. American economics at CY Cergy Paris University.

White-collar workers worse off than blue-collar workers

The series of announcements of layoffs in the technology sector in the United States contribute to this image of white-collar workers hit hard by the economic downturn.

"The median annual salary at Meta - Facebook's parent company - is $295,785, while it is $232,626 at Twitter [two groups affected by major social plans, editor's note]", details the Wall Street Log.

That's almost five times the median annual income in the United States.

The social heist isn't limited to Silicon Valley's biggest stars.

Even before the end of last year, the picture was more than bleak for the tech sector: more than 80,000 employees had been laid off, underlines the Washington Post.

A statement drawn up before other major announcements, such as that of the giant Amazon which unveiled, Wednesday, January 4, its intention to part with 18,000 employees this year.

Another phenomenon that harms the wallets of the upper classes: poor stock market health.

In 2022, Wall Street had its worst year since 2008: the S&P 500, the index of the 500 major listed companies, fell by 20%.

Despite a certain democratization of stock market investment, portfolios of financial assets remain mainly in the hands of the wealthiest, notes Martial Dupaigne, macroeconomist at the Toulouse School of Economics and Paul-Valéry University in Montpellier.

And the current situation may seem particularly perilous for them: "Stock market valuations have reached spectacular levels during the pandemic with some companies like Apple or Alphabet whose stock market value has risen by 1,000 billion dollars over the past two years. The current fall may erase very large sums for the investors of these large groups who are generally well off", explains Martial Dupaigne.

At the other end of the social pyramid, "for most of the poorest Americans, the current period is easier financially", assures the Wall Street Journal.

The proof ?

“The labor market appears to be more advantageous for job seekers without training,” observes Tobias Broer, specialist in international macroeconomics at the Paris School of Economics (PSE).

Unlike tech giants, multi-industry groups that use employees at the bottom of the pay scale struggle to recruit.

Indeed, the hotel and restaurant sector is still around a million short of employees compared to February 2020, at the start of the Covid-19 pandemic, notes the Wall Street Journal.

Consequence: these employees are in an advantageous position to negotiate increases in remuneration.

The incomes of the poorest households have also increased by 7% since the end of 2021, noted the American Federal Reserve.

A short-lived "richcession"?

The expected recession would therefore be of a new kind.

An unprecedented "richcession"?

Not so fast, want to qualify the economists interviewed by France 24. The situation we are seeing today may, of course, seem extraordinary, but "it is very speculative and creative to find a new form of recession from the some examples cited in the article", tempers Martial Dupaigne.

First, "layoffs in the tech sector are a sectoral phenomenon", underlines Tobias Broer.

There is no indication so far that white-collar workers in other industries – finance, advertising, etc.

– meet the same fate.

“It is still a little early to generalize”, judges the economist of the PSE.

The misfortunes of the stockbrokers are, moreover, not only a matter of millionaires.

"We must not forget that pension funds are indexed to the stock market, so if it falls, it is the income of retirees and veterans who will also be affected," recalls David Philippy.

Finally, raving about the good shape of the labor market for employees at the bottom of the salary scale would amount to taking a short-term view of the economic sequence that is coming, underline the experts interviewed.

The comparison between the unemployment of senior executives and a very dynamic job market for low wages "does not hold since senior middle managers remain unemployed for a much shorter time", underlines Pierre Gervais, specialist in American economic history at the new Sorbonne University.

Not to mention that the fight against inflation should end up affecting the employment of the poorest.

"If politicians want to reduce inflation sharply, they will have to fight wage increases, which should translate into deteriorating labor market conditions for low incomes," said Tobias Broer.

Overall, the most questionable aspect of this new concept of "wealthcession" is "the amalgamation between the short and the long term", believes David Philippy.

The Wall Street Journal's analysis is based on the idea that this very particular situation – many layoffs in tech and the stock market in sharp decline – will last until the end of the recession or the economic slowdown period.

However, "it is very likely that heavily devalued stock market assets will go up at some point", says David Philippy.

A politically connoted concept?

"We can say at the limit that this beginning of recession first affects senior executives", concedes Pierre Gervais.

But it's not such a novel phenomenon that it deserves a shocking new term like "wealthcession."

Indeed, "several major sequences of recession in the United States began with stock market incidents that hit the wallets of the more or less rich, starting with the 2008 crisis", recalls Pierre Gervais.

This specialist suspects the concept of "wealthcession" to be politically connoted.

First, because the term can be confusing.

"It doesn't really add up because the whole article is aimed at pitting the fate of middle and upper management against that of unskilled workers, but neither of these two groups is really rich. On the other hand, the recession spares the 'real 'Rich [i.e. the famous 1%, Editor's note]", assures Pierre Gervais.

“It is true that the article is not really about the fate of the ultra-rich in the United States, whose main income comes from capital and who are little affected by the layoffs [or the probably temporary upheavals of the Stock Exchange]”, recognizes David Philippy.

And putting everyone in the same bag of "wealthcession" can give the impression that the wealthiest are not spared this time around.

A way to prepare to counter the call, classic in times of crisis, to put the richest more to contribute to lighten the shoulders of the most fragile?

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