The 'richcession' is real—Unemployment is rising for the 6-figure salary set, BofA data shows
By most measures, six-figure earners are the elite of America’s workforce. People making more than $100,000 a year were the most likely to survive the mass layoffs early in the pandemic and, when work returned, most likely to be able to work remotely, saving themselves exposure to COVID-19 and the time and money spent commuting. And that’s on top of the typically higher income security enjoyed by this income bracket.
Now, however, cracks are showing in the top 25% of the income distribution, according to recent research from Bank of America—raising the possibility that a much-feared “richcession” could be around the corner if the wealthy don’t cheer up.
Unemployment is rising fastest among households making $125,000 or more, the bank said in a recent note based on analysis of its deposit data. As of last month, the number of high-income households receiving unemployment benefits was about 70% higher than the year before, more than double the rise in the lowest-income bracket, which includes households making $50,000 or less. That continues a trend that started at the beginning of 2023 but has become more pronounced this summer, the bank noted.
But what is a richcession anyway, and how serious is this data? To understand what’s going on, you have to rewind back to the beginning of the year.
Crush the wealthy and inconvenience the poor?
The “richcession” was born, as a concept, in Wall Street Journal reporter Justin Lahart’s “Heard on the Street” column in January 2023. The typical recession playbook, in the words of the Journal, crushes the poor but merely inconveniences the wealthy, and a richcession would naturally do the opposite. Luxury real estate and apparel sales would drop while popular restaurants remain open and midrange cars keep rolling off factory floors. Since Lahart’s new year warning for the well-heeled, there have been some warning signs of an upper-crust malaise, such as last month, when luxury conglomerate LVMH reported a surprising sales drop as “aspirational” shoppers came down to Earth.
While overall unemployment figures remain very low, the divergence between income groups is a concern for Bank of America, which notes that “unemployment is picking up from these very low levels at a faster pace for higher-income earners” than for their lower-earning brethren.
Blame the Fed’s interest rate hikes, which have disproportionately hit the high-paying tech and finance sectors. Layoffs in the tech sector have surged by a factor of 16 from last year, according to outplacement firm Challenger, Gray, and Christmas, while finance job cuts have more than doubled.
Unlike most downturns, which hit lowest-paid workers first and hardest, this time layoffs have been concentrated in the professional sectors, with formerly high-flying tech companies including Alphabet, Amazon, and Meta cutting thousands of jobs even as restaurants and construction companies keep hiring.
No surprise, then, that wages for the top income bracket have been flat this year, according to Bank of America, while rising 3% for the lowest-paid third, and 2% for middle incomes. Earlier in the year, six-figure earners group actually saw wages fall—likely a result of shrinking bonuses compared with the year before.
The typical worker might justifiably ask: So what? The recent downturn in the professional class’ fortunes is just a blip against a backdrop of stagnating wages for the lower and middle classes and staggering gains for the top 10% that has continued for over four decades.
But the slowdown for the tippy-top could presage a bigger slowdown in consumer spending, Bank of America notes. As a result of the relative job insecurity, “it is possible higher-income households may be feeling a little more cautious up to this point,” the bank wrote—indeed, consumer sentiment has been weakening for this group over this year.
If that trend doesn’t reverse soon, LVMH and its ilk could be facing a very cool summer indeed.