Weak labour market holding back recovery - ILO

* Rise in unemployment is deflationary drag on recovery

* Youth particularly hit, many dropping out of labour mkt

* Unemployment seen at 6.1 pct in '11 vs 6.2 pct in '10

A faltering and uneven increase in jobs is holding back the overall economic recovery and unemployment is likely to continue at near record levels this year, the International Labour Organisation said on Tuesday.

Weak job creation is particularly devastating for young people, and official figures understate the true number of unemployed as many people have given up looking for work, the United Nations jobs agency said. The ILO released the bleak report on the eve of the annual meeting in Davos of business and political leaders, who are confronted this year by growing economic disparity between and within countries, and an apparent inability of the international community to deal with the problem. Presenting the ILO's Global Employment Trends 2011, executive director Jose Manuel Salazar-Xirinachs said the recovery in economic growth will lose momentum this year.

This is partly because of the deflationary effects of the dire state of labour markets, he told a news conference.

Unemployment, insecurity about jobs and cuts in social benefits are depressing consumption, a key element in domestic demand, preventing a self-sustaining recovery from taking hold, he said.

Unemployment rates in some developing economies such as Brazil have fallen below levels before the global crisis but continue to rise in many countries.

The ILO expects the total number of unemployed to edge down to 203.3 million this year, a jobless rate of 6.1 percent, from 205 million or 6.2 percent in 2010.

The total number of unemployed rose by 27.6 million between 2007 and 2010 in the crisis and its aftermath, it estimates. 2011 will most likely be the third consecutive year with global unemployment above 200 million people, Salazar-Xirinachs said.

DISCOURAGED WORKERS

The slight improvement in the jobless figures masks the fact that millions of people have dropped out of the labour force in despair at ever finding work, ILO experts say.

The ILO does not have a figure for these people, who would boost the true unemployment rate significantly. But it estimates on the basis of data from 56 countries that 1.7 million fewer people aged 15-24 have joined the labour force than would have been expected on the basis of pre-crisis trends.

Young workers have been particularly badly hit, with an unemployment rate of 12.6 percent in 2010 against 4.8 percent for adults, the ILO said. This is expected to tick down to 12.3 percent this year but the figure is a global average, masking rates of 30-40 percent in some countries.

Youth unemployment rates in 2010 of 18.2 percent in developed countries including the European Union, 23.6 percent in North Africa and 25.1 percent in the Middle East pose a challenge to policymakers keen to prevent the weak economy provoking social unrest.

Clearly young people have been very badly hit by the recession and the weak recovery does not bode well for job opportunities for them, Salazar-Xirinachs said.

While developed nations account for 15.7 million of the 27.6 million rise in unemployment, many offer social safety nets unavailable in poor countries, where the number of working poor earning less than $1.25 a day or in jobs that are vulnerable is growing.

Salazar-Xirinachs said governments should maintain fiscal programmes that support employment or private-sector investment, and avoid measures to reduce budget deficits in the short term that weaken job creation and undermine the recovery.

Large emerging economies that have relied on exports for growth should rebalance by boosting domestic consumption, for instance through better social benefits or higher wages, he said. (editing by David Stamp)