Unemployed people living in council homes could be offered incentives to move to areas where there are jobs, the work and pensions secretary has said.
Iain Duncan Smith said millions were trapped in "ghettos of poverty" unable to move for fear of losing their homes.
Labour's Ed Balls called the idea "profoundly unfair" and likened it to Tory calls in the 1980s for people to "get on your bike" to look for work.
But Mr Duncan Smith said such comparisons were "ludicrous".
The coalition government has promised bold welfare reforms to ensure work pays better and to tackle generations of unemployment in families.
Mr Duncan Smith said that the fact that there were five-and-a-half million people who were not working showed that current policies were not working.
Britain had one of the most static workforces in the western world, with people "trapped" in areas with high unemployment, he said.
Under the last government, he told Sky News, "almost ghettos of poverty" had appeared "where people are static and unable to get work because there is not work there".
The government wanted to distribute unemployment more evenly across the country and to make it as easy for people on low incomes to travel to do a job as the better-off, he added.
Mr Duncan Smith said he did not expect people to relocate to different parts of the country, nor did he want everyone to move to the south east of England.
'Desperate for work'
But where work was available some 10 or 15 miles away from where someone lived, people would need support to take advantage of the opportunity.
"People are desperate to be able to work and be with their families," he said.
"We need to look at ways to find that for them."
Labour has warned that people could lose their rights to housing benefit unless they were willing to travel to find work and there were no commitments to rehouse workers should they decide to do so.
But Mr Duncan Smith said his plans were about assisting people, not forcing them to uproot.
"It is not threatening people; far from it," he told Sky News.
"Most people I talk to on housing estates desperately want work but they are trapped. It is about trying to help them to find a way out."
Asked about the idea, Chancellor George Osborne - who is attending the G20 summit in Canada - said anything that encouraged social mobility should be looked at.
"We want to give people freedom of choice and we want to give that freedom of choice to people in social housing just as people in private rented housing or who own their own home have," he said.
"It is about giving people on lower incomes in our society the kind of opportunities and aspirations that other people in our society take for granted."
'On your bike'
But shadow education secretary Ed Balls accused Mr Duncan Smith of "on your bike" politics, a reference to former Tory minister Lord Tebbit telling the unemployed in 1981 to get on their bikes to look for work.
"It goes further than on your bike," he told Sky News.
"It is on your bike and lose your home. That seems to be profoundly unfair and the wrong way to deal with the unemployment problem."
"It is back to the 1980s," he added. "The idea somehow that the only solution to unemployment is to cut benefits and say to people, 'go and do it yourself'. We know that does not work."
Instead, he said ministers should be focused on bringing more investment into unemployment blackspots to create jobs.
The BBC's Political Correspondent Mike Sergeant said the issue could create tensions within the coalition, with the Conservatives willing to move at a much faster pace on welfare reform than the Liberal Democrats.