Downward mobility is never neutral. Losses hurt roughly twice as much as equivalent gains feel good. I'm convinced more people would forgo the safety and stability of salaried employment if this wasn't the case. But it's the psychological adjustment, and the continuous work of narrating change to yourself and others, that interests me most when it comes to making sense of economic pressure.
Because that work isn't unique to entrepreneurs needing to manage their budgets (though, ask me about how much I miss gel manicures). It's something that the middle-class as a whole is increasingly navigating in both Canada and the United States.
A recent piece in the Toronto Star unpacks the nuances of the K-Shaped economy to the North and South of the 49th parallel. The TL;DR is that the gap is widening in both countries. And, that the "K" is steeper, looking more like the jaws of a crocodile in the U.S. than it does here in Canada.
This bifurcation isn't new. CPG brands in particular have been focused on rethinking pricing, value tiers, and channel strategy for years now to play to both sides of it.
That's a reasonable response to the data. But there are limits to this approach.
The more consequential group – increasingly so now that some economists are talking about more of an "E-shaped" economy where the middle class is pulling back – is the group that doesn't fit cleanly on either arm of the K. The middle. People who are not struggling in ways that they'd necessarily name as a struggle, but struggling nonetheless.
And it's not as simple as the logic here moving from two to three tiers.
Identity under pressure
According to Federal Reserve data, middle class costs have outpaced their income for three years running. The gap between what a median household earns and what a median middle-class life actually costs (housing, transportation, childcare, healthcare if you're in the U.S.) has grown wide enough that it can no longer be managed by cutting the obvious things. The situation in Canada is similar.
Whether this downward mobility is transient or permanent is up for debate, but what differentiates this middle group from the bottom part of the "K" is that their identities are at stake. For them, discretionary spending is about more than little luxuries - we're talking about material expressions of identity.
Those material expressions being under threat produces a specific kind of effortful adaptation.
Not denial, but something close to it.
No longer paying for gym membership becomes "I prefer to train outside." Eating out less becomes "we've actually been eating better since we started cooking more." Or, foregoing the summer vacation becomes "we really want to spend more time at home this year."
This is narrative repair. Converting economic constraint into personal choice, because the alternative of admitting that the life you built is under pressure feels like sh*t.
The performance of stability
Getting to honesty or truth has always been a negotiation when it comes to research with human beings. But it is becoming particularly problematic with this group, because their private financial realities are becoming even more heavily guarded as economic struggle intensifies.
Conventional research approaches can only surface the output of the narrative repair process. The curated, dignity-preserving story of deliberate trade-offs and considered values. A performance aimed first at the self, and then at the researcher.
The stakes here are higher than a flawed study. The middle tier in an "E-shaped" economy is not a secondary consideration. Historically-speaking, they are the engine of consumer spending, brand loyalty, and growth. It is also the group most brands are implicitly designing for when they talk about their "average consumer."
If the signal you're getting from this group is a performance rather than a reality, you are building strategy on a foundation that doesn't exist.
A sovereign choice
When brands misread trading-down as price sensitivity and respond with promotions, they can undermine the very identity their consumer is working to protect.
Consumer markets are increasingly described as barbell-shaped: Heavily weighted at both the value and premium extremes, with the middle rapidly thinning. Most post-mortems on mid-market brand erosion attribute this to pricing pressure and competitive dynamics. That's part of the story, for sure.
But it's worth asking why some middle-market brands are not just surviving, but loved. New Balance spent decades as a sensible middle shoe and is now culturally ascendant without moving up-market. Carhartt has been worn proudly across income levels without ever changing what it is. Levi's has carried identity through fifty years of market shifts without a forced value play, or a luxury one.
None of these are barbell plays. What they share is something harder to manufacture: they meet people exactly where they are without making them feel bad about being there. They don't ask people to perform anything. There's no aspiration gap to bridge or identity cost to absorb.
The choice feels sovereign, even when it's inexpensive.
The alcohol industry shows what happens when you get it wrong. For years, premiumization was the governing logic — the major houses doubling down on fewer, more expensive products, riding what looked like a durable consumer truth.
Eventually, the economic context shifted and the industry-wide results have been… not great.
Today one of the few bright spots in beverage alcohol is RTDs. Canned cocktails. An occasion similarly met without an aspiration gap or identity cost.
Getting to Truth
The middle tier in an "E-shaped" economy is unlikely to tell you what you need to know in conventional research settings. Narrative repair is active, ongoing, and largely unconscious.
The barbell is a market structure story, to be sure. But it's also a cautionary tale about the dangers of misunderstanding the middle of the market.
Losses hurt twice as much as gains feel good. The longer this economic pressure persists, the more people will be narrating change to themselves and others. In an "E-shaped" economy, understanding not just what people spend, but what they need that spending to mean is the whole game.
Surveys and transactional qual won't get you there.
We're getting ready to explore this topic as a part of our next deep-dive report. So, if there are burning questions that are top of mind for you, I'd love to hear them.