One of the paradoxes of contemporary European welfare states is that while today practically every adult citizen seeks gainful employment, jobs are hard to come by. There is a growing number of (economically) inactive citizens, people of working age who are structurally dependent on social policy for their livelihood. In this paper the rise of structural inactivity is analyzed from two contrasting sets of arguments about the unintended or perverse effects of social policy. The first argument revolves around the decline of the traditional work ethic in the welfare state; the second argument suggests that the predicament of structural inactivity is the consequence of accumulated rigidities and historically perverse social security policy choices. Both arguments are subsequently confronted with empirical evidence from the highly advanced welfare state of the Netherlands, which after a deep crisis of inactivity has been able to reverse the cycle of declining activity and rising inactivity through a lengthy process of negotiated social reform. Finally, the paper, in terms of normative policy advice, considers a number of employment-friendly policy initiatives which are likely to result in an increase of labour force participation in persons and a voluntary decrease in hours worked. This could foster a more nuanced and less gendered work ethic, while maintaining the moral integrity of an inclusive and rights-based conception of social citizenship.