The measures, which follow a landmark deal to sell the group's prized elevator division, are aimed at making Thyssenkrupp's steel production business competitive once more against rivals including ArcelorMittal and Voestalpine.
The steel business, the second-biggest in Europe by sales, is reeling from weakening demand, cheap Chinese imports and a botched attempt to merge it with the European division of Tata Steel, a deal blocked by Brussels on antitrust concerns.
"We have put off problems for too long and shied away from tough decisions," said Klaus Keysberg, Thyssenkrupp's board member in charge of steel. "The agreements give us room for manoeuvre so that steel can remain competitive in the long term."
Jobs will be cut in a socially responsible way, with no forced layoffs until March 31, 2026, said Thyssenkrupp, whose sprawling engineering business ranges from making submarines to car parts.
The steel division will get annual investments of about 570 million euros, with an additional 800 million split over the next six years.
Thyssenkrupp shares shot up 22% on the news.
"Thyssenkrupp management finally seems to tackle problems resolutely and maybe just in time to turn the ship," a local trader said.
The deal also has an immediate coronavirus crisis package that includes shortened working hours, which will be implemented over the coming weeks, the company said.
Thyssenkrupp said it would make production adjustments in its steel business as a result of the pandemic.
"We will have to go into short-time work at many locations in the coming weeks. This will initially affect production-related areas," said executive board member Oliver Burkhard.
The package also requires the steel business, Thyssenkrupp Steel Europe, to increase short-time work pay to 80% of all wages, according to the company.
Thyssenkrupp scrapped its 2019-2020 profit outlook on Monday, blaming the economic downturn triggered by the fast-spreading coronavirus.
The agreement with the labour union applies to all of Thyssenkrupp's steel locations, which are all in Germany.
(Additional reporting by Bhargav Acharya in Bengaluru; Editing by Gerry Doyle and Pravin Char)
By Christoph Steitz and Tom Käckenhoff