* Labour laws ranked as among world's most restrictive
* Unemployed youth face lives of joblessness
By Jon Herskovitz
JOHANNESBURG, Aug 17 (Reuters) - South Africa's governing alliance between labour and the ANC was given an uncomfortable warning this week by the finance minister, who suggested labour laws they had crafted over the years to protect workers could in fact be causing chronic unemployment.
The comments from Pravin Gordhan annoyed leading labour federation COSATU, but they could spur a much needed debate about labour laws that have eaten into the global competitiveness of Africa's biggest economy.
Firms have shied away from South Africa due to the laws that make it expensive to hire and fire workers and are ranked by the World Economic Forum's Global Competitiveness Report as some of the most restrictive in the world.
Gordhan told a conference on Monday that unless changes were made: "We will not be able to make the breakthrough we need to create jobs."
He also suggested that regulations should be loosened to make it easier for firms to hire young workers at a reduced wage, to ease their way into the job market.
Unemployment, officially at just under 26 percent but estimated by some economists as closer to 40 percent, is a major factor behind an alarmingly high crime rate, and is driving the economic disparity that makes the country one of the most unequal in the world between the haves and have-not's.
"South Africa has amongst the least opportunities in the world for graduates and those who leave school," said Tony Healy, a labour expert. "Extraordinary challenges of this nature require extraordinary interventions."
WASTED MONEY
President Jacob Zuma has pledged billions of dollars for job creation but his government has also undercut those plans by proposing sweeping changes to labour laws that a presidential report said could actually cause millions to lose their jobs by adding a raft of new costs and regulations on employers.
The ANC has allocated billions over the years for job training only to find the money lost to inefficiency and corruption, with few economists expecting the latest jobs plan to do little more than swell state spending.
Zuma, struggling for support and facing an election next year to prolong his presidency over the ANC, does not want to antagonise COSATU, a political power broker that has used its might to put pro-labour laws on the books.
COSATU spokesman Patrick Craven told Talk Radio 702 this week that cheaper workers will not grow the economy.
"The cheaper the labour, the less tax they pay and the less money they spend in shops," he said.
The problem is that without an inexpensive way to take new workers into the workforce, the unemployed will likely remain unemployed -- raising government spending for welfare benefits.
Youth unemployment is at about 50 percent and a study by the South African Institute of Race Relations said about half of the current generation of those between 25 to 34 years old will never work in their lifetimes.
"COSATU is not beholden to the unemployed. They are beholden to the employed, which is their membership," labour expert Healy said.
While COSATU members in sectors such as mining and manufacturing have seen wage increases of about 30 percent over the past three years, the economy has shed more than one million jobs as employers cut workers to help pay for increasing personnel costs and as a result of the global financial crisis.
South African labour is already more costly and less efficient than in emerging market rivals, with the average South African factory worker earning six times more than a Chinese factory worker and producing far less.
Economists say South Africa's long-term economic viability is at risk unless the country makes it easier and cheaper for firms to take on new workers and dismiss them in a less restrictive manner than present -- where it can take years for government agencies to decide if a dismissal is appropriate.
They would also like to see money earmarked for job creation going to tax breaks for firms that could help grow the economy, such as industries that would process the country's mineral wealth, which is now mostly exported for the value-added work.
As Finance Minister Gordhan said: "Given our current growth projections, South Africa may only create four million jobs by 2025, not enough to make a significant dent in unemployment". (Reporting by Jon Herskovitz; Editing by Giles Elgood)
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