By Francesca Piscioneri

ROME (Reuters) - Italy's new government will make few substantial changes to the much-criticized labor reform adopted last year by former premier Mario Monti, Industry and Welfare Minister Enrico Giovannini told parliament on Tuesday.

The unpopular reform made it harder and more expensive to hire workers on temporary contracts and slightly easier to fire permanent staff.

It has been widely criticized by both trade unions and employers, but Giovannini said the reform was showing some positive effects and any changes would be "limited to details."

He told a Senate panel that companies and investors dislike instability and would be unsettled by new rules, adding that the reform was in any case "having the effects expected."

He said that in the last few months job shedding had come to a halt in Italy, though this is not supported by official data which shows employment fell in four of the last five months reported up to March.

Giovannini, a technocrat who took office last month in the left-right coalition of Prime Minister Enrico Letta, was previously head of national statistics institute ISTAT.

Data issued on Tuesday by labor think-tank ISFOL showed that in the fourth quarter of last year permanent jobs increased 3.7 percent from the previous three months, while various types of temporary hires dived by between 6 percent and 22 percent.

Prime Minister Enrico Letta has said that tackling youth unemployment of 38 percent will be his top priority, and Giovannini said the government was looking into the possibility of offering tax breaks to firms that hire young people.

However, he played down the likely impact of such measures.

"It's unrealistic to think that regulatory or fiscal changes can reduce unemployment, there is no possibility of cutting unemployment unless output increases in the coming months and years," he said.

Italy, the euro zone's third largest economy, has also been its most sluggish for more than a decade. It is currently mired in its longest recession for 20 years and industrial output is still around 25 percent lower than its peak reached in 2008.

Giovannini said changes would be made to Monti's flagship reform of the pension system by making it easier to leave work before the standard retirement age, which will reach 66 years in 2018, while receiving a reduced pension.

He offered few details in a largely broad-brush illustration of his ministry's priorities, which will also include finding resources to top up a fund that provides benefits to laid off workers and whose budget for this year has run out.

(Writing by Gavin Jones; editing by Ron Askew)