The state is the only employer most Cubans have ever known and the changes may be difficult for some [AFP]

The Cuban government has announced plans to lay off at least half a million state workers by the middle of 2011 and to reduce restrictions on private enterprise to help them find new jobs, in one of the most dramatic steps yet to reform communist island's economy.

Raul Castro, the Cuban president who replaced his ailing brother Fidel, suggested in a nationally televised speech on Monday that nearly one million Cuban workers, about one in five, may be redundant.

The lay-offs will start immediately.

Al Jazeera's Juan Jacomino, reporting from Havana said: "It will take a few days before Cubans realise what is going to hit them."

"They are going to have to get used to working in a sector other than the state. For many years, 90 per cent of the Cuban labour force have been working for the state," he said.  

The Cuban Workers Confederation (CTC), the only labour union allowed by the government, said the state would increase private-sector job opportunities, including allowing more Cubans to become self-employed and encouraging cooperatives run by employees rather than government administrators.

"Our state neither can nor should continue maintaining companies ... with inflated payrolls, and losses that are a drag on the economy, are counterproductive, generate bad habits and deform worker's performance," the CTC said published in government media.

Social services continue

Our correspondent said that Cuba will continue to provide its citizens with free health-care and education: social programmes which are widely seen as hallmarks of the 1959 revolution.

"The services will be provided for them as before, free of charge, regardless of they are self employed or if they have set up a working brigade or cooperative," he said.

But changes towards a market orientated economy may not come easily, he said.

"The government has been talking about self employment, but that means an initial investment, and the tools are nowhere to be seen. This may turn out to have a bitter taste for some Cubans."

Fidel Castro made head-lines recently, when he told an American reporter that: "The Cuban model doesn't even work for us any more." 

Castro, 84, later confirmed he made the remark, but was amused to see it had been taken literally and said that he meant "exactly the opposite."

Castro's brother Raul said a year ago that the government wanted to relocate more than a million state employees.

These economic changes are "only the beginning" our correspondent in Havana said.