Work for welfare, labour for free?

So Iain Duncan Smith says graduates who are unemployed should not consider themselves too good to stack shelves in supermarkets to keep their unemployment benefits. Really. If they are stacking shelves in supermarkets why are they classified as unemployed? They are working for a company - so let the company who is benefitting pay them. Real 'welfare for work' schemes benefit the community, they don't provide free labour for companies. If you can get free labour provided by the government why employ anyone????