The agreement came at a tripartite commission involving labour groups, business leaders and government officials, commission officials said.

The deal called for companies to avoid unnecessary job cuts, while unions agreed to cooperate for "stable wages" over the next two years.

In return, the government will remove restrictions limiting corporate activities and provide financial and tax assistance for creating jobs.

Boost to productivity

"We agree to work closely together, based on common awareness that cooperation between unions, management and government is the key to our national development," the agreement read. 

The accord needs approval from trade unions, but government officials said it would boost productivity. 

Unions staged violent protests last year against new laws aimed at curbing union power and giving employers more freedom to hire and fire. 

Rising unemployment

Companies have demanded tighter restrictions on strike pay, arguing South Korea's competitiveness is suffering because of high labour costs and strikes, which have alarmed foreign investors and worsened last year's recession.

President Roh Moo-Hyun has said tackling unemployment is his top economic goal for 2004. South Korea's unemployment rate rose to 3.4% last year from 3.1% a year ago. 

Exports, the engine of South Korea's growth, are strong but government officials say it remains uncertain when domestic
consumption and corporate investment will recover in real terms.

The economy was estimated to have grown by less than 3% last year, compared to 6.3% in the previous year.