Castro suggested during a nationally televised address on Easter Sunday that as many 1 million Cuban workers - about one in five - may be redundant. But the government had not previously laid out specific plans to reduce the work force.
The layoffs will start immediately and continue through the first half of next year, according to the nearly 3 million-strong Cuban Workers Confederation - the only labor union allowed by the government.
To soften the blow, it said the government would increase private-sector job opportunities, including allowing more Cubans to become self-employed, forming cooperatives run by employees rather than government administrators and increasing private control of state land, businesses and infrastructure through long-term leases.
The statement, which was published in state-controlled newspapers and read on government-run radio and television, said because of the sheer number of workers involved, the layoffs would come slowly, but that they would affect all government sectors.
It did not say which parts of the economy would be retooled to allow for more private enterprise. The union said that the state would only continue to employee people in "indispensable" areas where the labor force is historically insufficient, such as in farming, construction, industry, law enforcement and education.
In August, Castro warned that layoffs would be coming and said Cuba would expand private enterprise on a small scale, increasing the number of jobs where Cubans could go into business for themselves.
Still, Monday's announcement shows his government is moving to pair back state payrolls far faster than expected.
"Our state cannot and should not continue supporting businesses, production entities and services with inflated payrolls," the union said, "and losses that hurt our economy are ultimately counterproductive, creating bad habits and distorting worker conduct."
It added that Cuba would overhaul its labor structure and salary systems since it will "no longer be possible to apply a formula of protecting and subsidizing salaries on an unlimited basis to workers."
Instead, Cubans will soon be "paid according to results," it said, though few details were provided. Castro has said repeatedly he sought to reform the pay system to hold workers accountable for their production, but the changes have been slow in coming.
Currently, the state employs 95 percent of the official work force. Unemployment last year was 1.7 percent and hasn't risen above 3 percent in eight years - but that ignores thousands of Cubans who aren't looking for jobs that pay monthly salaries worth only $20 a month on average.
In exchange for the low salaries, the state provides free education and health care and heavily subsidizes housing, transportation and basic food.
Castro's government has moved to embrace some small free-market reforms. Earlier this year, it handed some barbershops over to employees, allowing them to set their own prices but making them pay rent and buy their own supplies. Authorities have also approved more licenses for private taxis while getting tough on unlicensed ones.