Figures released show that more than 250,000 young people are growing up in homes where no one has ever worked. 600,000 young people under the age of 24 have never worked since leaving education.
Employment minister Chris Grayling said the figures represented a "ticking time bomb" of unemployment left by Labour.
Responding to the problem of workless households, Mr Grayling announced a new programme to give young people a chance of extended work experience.
Under the scheme, young people will be allowed to do work experience for up to eight weeks so they can get a "meaningful" stint in a business environment, improving their CV and providing value to the employer.
Under the old system people were allowed to do only two weeks experience before facing a loss of benefits.
Mr Grayling said: "Our new work experience scheme will give young people the chance to get valuable experience in a business for up to two months, which will make a real difference to their confidence, their employability and their prospects. This Government is making the changes that will give young people access to jobs and opportunities that can help them towards a brighter future.
"Today's figures on children growing up in workless households highlight once again the shocking betrayal of this country's young people by the last Labour government.
"Billions were squandered on the New Deal and Future Jobs Fund which too often merely put the young in short term, public sector jobs that were unsustainable.
"Their failure to get young people into work will cost us dear in the long run, as the next generation have to shoulder the burden not only of the enormous debt left by Labour, but also lack the confidence to reach their potential. We have a big challenge ahead of us, but tackling youth unemployment is crucial for the future of our country and our labour market."
