While ruling out 'workfare' - a requirement to do useful work in return for benefit - in the jobs and unemployment package likely to be revealed in next month's Budget, Mrs Shephard said: 'One of the most damaging requirements of unemployed people is that they are specifically excluded from undertaking, say, full-time courses of education while they are unemployed.'
Mrs Shephard said the Prime Minister's remarks in his recent Carlton Club speech were about 'offering and requiring some activity from unemployed people.
'The element of compulsion in the system at the moment actually requires people to be inactive in some ways,' she told BBC Radio 4's The World This Weekend.
'We do need to look and are looking with the Department of Social Security, the Department for Education and right across government to see if there are more sensible ways of helping unemployed people to use their time more constructively.'
Under current Department of Employment and Social Security rules, the jobless are prevented from taking full-time further education courses or unpaid voluntary work because they do not then comply with the rigid 'available for work' pre-condition for receiving benefit.
Mrs Shephard's remarks coincided with a call to employers from the 12,000-member Industrial Society, the independent training group, for young people to be given wide-ranging work experience, not mundane tasks.
Meanwhile, Gordon Brown, the shadow Chancellor, challenged the Prime Minister in a letter to explain why nearly 100,000 training places had been cut under his premiership.
Mrs Shephard accepted that fear of unemployment in the period before Christmas had played a part in holding up the recovery.
But she said: 'I do think that the improvements in retail sales and new car registrations and indeed a little bit of movement in the housing market show that that fear is declining.'
Frank Dobson, Labour's employment spokesman, said the Government's priority should be to save the 300,000 jobs under threat from pit closures, the squeeze on local authorities, BR and Post Office privatisation, the contraction of the defence supply industry and underfunding of London Transport and the NHS.
Full employment must be the ultimate object of every government's economic policy, Mr Dobson told the programme. 'The high levels of unemployment over the whole of Europe are a threat to democracy itself because the neo-fascists in Italy, the neo-Nazis in Germany, Le Pen in France, are all drawing recruits from the legions of young unemployed people who are disillusioned with mainstream politics,' he said.
More than 3,500 job losses in 17 local authorities have been announced in the past 10 days, according to the first weekly Council Budget Monitor of job and service cuts compiled for Labour by the Centre for Local Economic Strategies.
Jack Straw, shadow Secretary of State for the Environment, said the impact of the 1993-94 revenue support grant settlement was hitting services and jobs in councils run by all the main political parties.
The Government is in danger of creating US-style, 'crime-ridden and decaying' inner cities by starving them of cash, Keith Vaz, Labour's local government and inner cities spokesman, said.
Mr Vaz, the MP for Leicester East, described as 'paltry' last week's announcement by Michael Howard, Secretary of State for the Environment, of pounds 20m of Urban Partnership Fund awards to 46 of the 57 councils that formerly benefited from the Urban Programme.Reuse content