Most of us see the falling US dollar in terms of cheaper overseas holidays. If only the devaluation of the world's reserve currency were that benign.
This week's edition of The Economist reports that Dubai's booming construction industry is under threat from the declining dollar.
…" on October 28th thousands of building workers interrupted Dubai's progress by going on strike for two days, hurling stones at police cars and demanding higher pay."
"Most workers have fixed contracts with labour-supply companies, and are struggling to cope with rising inflation in the UAE (United Arab Emirates) while their salaries remain the same."
Inflation is rising at an official rate of around 9-10%, but many believe the actual rate is much higher.
The high inflation rate is largely due to the UAE's peg to the US dollar. With the US dollar in freefall, currencies who maintain a pegged relationship must also depreciate. Authorities achieve this by creating more local currency, which leads to rising inflation.
While Dubai's construction sector workforce does not have much bargaining power – unions are banned in the UAE – the unrest could be a sign of things to come in similar countries around the world.
Rising inflation reduced the real wage rate, and with global construction firms posting healthy profits, it may be just a matter of time before labour demands a greater slice of the profit pie.
