Literary Fiction, Gothic or Horror Fiction
When "The Yellow Wallpaper" first came out, the public didn’t quite understand the message. The piece was treated as a horror story, kind of like the 19th Century equivalent to The Exorcist. Nowadays, however, we understand "The Yellow Wallpaper" as an early feminist work.
Gilman never intended "The Yellow Wallpaper" to be a Gothic horror, but as a cautionary tale about what supposed rest cures could do to the mental stability of patients. As Gilman stated in "Why I Wrote the Yellow Wallpaper," the story "was not intended to drive people crazy, but to save people from being driven crazy, and it worked."
As such, we think it always was a work of literary fiction...but people back in the 19th Century wanted to dismiss it as shocking schlock.