About 40 percent of the UAE’s workforce is made up of Indian nationals. One of them is KV Shamsudheen, who runs a local welfare trust and offers financial advice to his compatriots in the GCC on a weekly radio show. Lately, he says most of the complaints he has been receiving are from low- and middle-income workers who are afraid of losing their job, and who fear they’ll be left unable to repay loans they have used to make ends meet as the Gulf has become a more expensive place to live. “I’m getting calls from Saudi Arabia, Oman, Bahrain, Kuwait,” he says. “But the situation is worse in Dubai, [the] cost of living is highest in Dubai.”

The R-word. Crude observations like easing road traffic, vehicles abandoned at local airports and abbreviated taxi queues are another way of divining how much of the labor pool is drying up. They also point to how much trouble the real estate and construction industry, the country’s largest employment market, may be in.

The Middle East Economic Digest, which tracks building in the region, says the value of construction contracts awarded in the UAE tumbled 85 percent in the last quarter of 2008, compared to a year earlier. A December report by the Abu Dhabi Chamber of Commerce presaged that 40 to 45 percent of the UAE’s real estate workers will be laid off this year. And Swiss Bank UBS released a study last month predicting that Dubai’s population will actually shrink by 8 percent in 2009 – and by a further 2 percent in 2010 – thanks mainly to job attrition at construction and realty firms.

Cutting workers may help individual companies as they try to cope with dwindling revenues. But a flight of human capital could make a bad situation much worse overall. Foreign workers in the UAE have 30 days to find a new job after being laid off, or leave the country. While that condition is supposed to discourage freeloaders, it could soon cost Dubai dearly.

“They’ve always viewed the foreign-worker input here as a way  for [companies] to shed costs when times are bad,” says Paul Dyer, a research associate at the Dubai School of Government who specializes in Middle East labor supply issues. “If a firm brings in a lot of foreign workers and then they go through a downturn, they can easily shed workers – as opposed to a system where you have unemployment insurance or restrictions on layoffs.”

“What they’re seeing now is these skilled workers have invested so much in Dubai or the UAE, they spend so much money, they’ve bought in to housing – if they leave now they represent a further shedding of demand for everything from housing to malls,” Dyer says. “So they’re trying to keep those people here for the first time.”

A national dilemma. Dubai’s government has rung up $80 billion in public debt trying to create a local economy that can stand on its feet  without petroleum revenues. The emirate’s fast-growing population is a key ingredient in those plans.

Before the global credit system seized up in October, every month 25,000 people were relocating to Dubai. That’s 800 a day, 33 per hour. Each newcomer presumably chips in demand for local goods and services, and props up the emirate’s property and rental markets. Losing that vital source of new demand would make it a lot harder to keep Dubai’s real-estate-heavy economy expanding.

The first sign that some kind of policy response was in the works came in early January, when The National newspaper in Abu Dhabi reported the ministry of labor was considering quick reforms to allow jobless expatriates to stay in the country beyond the current 30-day limit. But changing the rules to keep jobless residents, their investments and spending habits rooted to the emirates may not be an easy task.

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