According to Fortune, IMF Managing Director Kristalina Georgieva, speaking at the World Economic Forum in Davos, described AI as a “tsunami” for labor markets, with the potential to transform or eliminate 60% of jobs in advanced economies and 40% globally. She argued that as AI enhances about 10% of jobs, those workers see wage gains—citing a PwC survey showing a 56% wage premium for AI-skilled roles—and their increased spending boosts demand for local service jobs. However, she warned this creates an “accordion of opportunities,” squeezing the middle class as their wages stagnate and youth employment faces barriers. This shift happens against a fragile global backdrop of 3.3% growth and sovereign debt nearing 100% of GDP. Other panelists, like ECB President Christine Lagarde and WTO head Ngozi Okonjo-Iweala, stressed that without global cooperation, AI’s capital-intensive nature will deepen inequalities within and between nations.
The Trickle-Down Service Economy
Here’s the thing about Georgieva’s spillover argument: it’s not new, and it’s not exactly wrong. It’s basically the old economic theory of the multiplier effect, now applied to the AI age. The logic is simple: if a software engineer uses AI to double their output and get a big raise, they’ll probably spend more on dinners out, home renovations, and personal trainers. That spending then creates jobs for cooks, carpenters, and fitness instructors. There’s even a specific study from San Francisco, linked in the Bay Area Council Economic Institute, that found each new tech job created about 4.4 other local service jobs.
So in a narrow sense, the IMF chief has a point. The demand for certain low-wage, in-person services might actually grow. But this feels like a very specific, and maybe fragile, silver lining. It turns low-wage work into a derivative of high-wage tech success. The entire local restaurant scene becomes dependent on the continued prosperity and spending habits of a relatively small group of enhanced professionals. What happens if those top earners decide to save their money or invest it elsewhere? Or if AI starts managing their investment portfolios and telling them to cut back on discretionary spending? The whole model feels precarious.
The Squeezed Middle and The Missing Rungs
This is where the real alarm bells in the IMF’s analysis should ring. While the theory offers a potential path for low-wage workers, it explicitly describes a hollowing out of the middle. Jobs that are neither enhanced by AI nor protected by being in-person services—think many administrative, analytical, or mid-level management roles—face a double whammy. They don’t get the AI wage premium, and their relative pay declines.
And then there’s the youth problem. Georgieva pointed out that AI is wiping out the very entry-level tasks that used to be the first rung on the career ladder. Think about a junior analyst whose job was to compile reports, or a paralegal who summarized documents. AI is terrifyingly good at that grunt work. So how does a recent graduate prove themselves and build experience? If the classic entry-point jobs disappear, we risk creating a “lost generation” that can’t get its foot in the door, regardless of education. That’s a social time bomb.
A Fragile World Isn’t Ready
Now, layer this massive labor market transformation onto the current global economic picture, and the challenge seems overwhelming. Georgieva herself said growth, while upgraded to 3.3%, is “not strong enough.” We’re talking about a world drowning in debt, trying to fund a green transition, and now needing to massively retrain workforces and build AI infrastructure simultaneously. The capital intensity that Christine Lagarde mentioned is key: AI benefits those who own the capital, the data centers, and the energy assets. It’s not a naturally egalitarian technology.
This is why the calls for global cooperation from the WTO’s Okonjo-Iweala aren’t just idealistic chatter. If AI development and adoption remain the domain of a few wealthy nations and corporations, the global inequality gap will explode. The spillover effect might work within Silicon Valley, but it won’t work for a developing nation whose industries are being disrupted by AI deployed from abroad. The IMF’s own blog has stressed this need for inclusive guardrails.
Wake-Up Call With Caveats
Georgieva’s final message was “Wake up.” And she’s right. The transformation is real and moving faster than policy. But her spillover theory for low-wage workers feels like one possible outcome in a best-case scenario where everything else aligns. It assumes continuous high demand for local services, it assumes the high earners spend their money locally (not on digital goods or foreign travel), and it completely sidelines the carnage in the middle of the workforce.
So what’s the takeaway? The IMF is telling us that the market alone won’t distribute AI’s benefits fairly. The spillover effect is a tiny, automatic stabilizer in a system heading for severe dislocation. Relying on it as a primary strategy for inclusive growth is a gamble. The real work—the retraining, the social safety nets, the global rules of the road—is still ahead of us, and it’s going to be expensive. The tsunami is coming, and we’re still arguing about the design of the lifeboats.
