State rail operator SNCF is struggling under debts of 46.6 billion euros ($57.5 billion), not least due to a huge pension burden from drivers who can retire in their early 50s.
"The situation is alarming," Prime Minister Edouard Philippe said.
"Whether or not they take the train, the French are paying more and more for a public service that works less and less well."
New recruits will no longer benefit from a special rail worker's status that includes a job for life, seven-hour days and generous pensions.
And the government will consider turning the huge state operator into an autonomous company backed by public funds, though Philippe insisted it would never be privatised.
Unions have already called a strike for 22 March 2018 after a government-commissioned report recommended the changes.
And further industrial action could be on the horizon after Philippe said the reforms would be pushed through by government decree.
Ex-investment banker Macron has already used the controversial tactic - seen by his critics as undemocratic since it allows him to bypass parliament - to force labour reforms aimed at shaking up the sluggish economy.
Union officials are to meet Tuesday to discuss their response to the government's plans, with the CFDT urging an indefinite strike starting 1 March 2018.
On Monday, Laurent Brun, head of the CGT Cheminots union, the largest among rail workers, warned he was ready to lead "a month of strikes" in order to force the government to back down.
"We are surely on our way to one of the biggest union actions in the SNCF's history," he told Le Parisien newspaper.
FO union chief Jean-Claude Mailly warned that using similar decrees to reform the SNCF would "pour oil on the fire".
Philippe insisted he was "not looking for a fight", saying that consultations would be carried out from next month before the reforms are pushed through mid-year.
"We want to move quickly without sidestepping consultations or parliamentary debate," he said, adding that fears of closures on provincial lines were unfounded.
Successive governments have failed to reform the heavily unionised rail sector.
In 1995, the national train network ground to a virtual halt for weeks over then prime minister Alain Juppe's attempts to reform the rail workers' benefits.
France's train network is considered among the best in Europe, ranked seventh in the 2017 European Railway Performance Index by consultants BCG.
But commuters in the provinces complain of patchy service and frequent cancellations, and Philippe claimed that running a French train is 30% more expensive than elsewhere in Europe.
The reforms follow a government-commissioned report by former Air France boss Jean-Cyril Spinetta which criticised the quality of service offered by the SNCF.
Unions blasted the report - which also suggested voluntary redundancies - and lashed out in particular at proposals to cut back on benefits.
More than 90% of SNCF staff - some 140,000 people - enjoy the special rail worker status.
Train drivers can retire at 52, while other benefits include access to tens of thousands of homes, sometimes at a reduced rent.
Rail workers will join civil servants striking on 22 March 2018 over redundancy proposals and higher use of short-term contracts as Macron seeks to slash 120,000 public-sector jobs over five years.
Unions have staged several major protests since the business-friendly centrist came to power in May, but Macron has so far avoided the mass strikes and demonstrations under his predecessor Francois Hollande.
Source: AFP
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