Gordon Brown has defended his decision to hold down this year's public sector pay rise, saying he does not want a return to "boom and bust" economics.
Unions are warning they may strike over pay
The prime minister told the TUC in Brighton that financial discipline was essential to prevent inflation, to maintain growth and to create jobs.
He received a lukewarm reaction, with some union members holding up placards opposing the below-inflation pay rises.
The PM also unveiled plans to create 500,000 jobs for British workers.
In his first speech to the TUC annual conference as prime minister, Mr Brown told union members: "So let me be straightforward with you - pay discipline is essential to prevent inflation, to maintain growth and create more jobs - and so that we never return to the old boom and bust of the past."
The prime minister warned that if inflation was allowed to get out of control, the country could go back to the "same old familiar pattern" of spiralling prices, high unemployment and public spending cuts that there had been under the Tories.
But as he spoke out, unions threatened a "winter of discontent" over the below-inflation public sector pay offer.
A quarter of a million workers belonging to the Public and Commercial Services Union agreed to be balloted on possible strike action in a dispute over pay and job cuts.
Members at the Department for Work and Pensions rejected a three-year deal by an overwhelming three to one.
Union leader Mark Serwotka said this could lead to industrial action unless the pay offer was improved by the end of the month.
Billy Hayes, general secretary of the Communication Workers Union, said: "The government cannot achieve its own poverty reduction targets through low pay."
Brendan Barber, the TUC general secretary, said while his members had problems "with aspects of government policy", he believed Mr Brown did want to work with the trade union movement "in a positive way".
In his speech, Mr Brown unveiled measures aimed at achieving the dream of "a British job for every British worker".
He said he wanted to "fast-track" lone parents and the long-term unemployed back into work and was in talks with almost 200 major companies in order to achieve this.
He also outlined details of a scheme to make more non-EU migrants pass GCSE-standard English language tests before coming to work in the UK.
Other measures include:
- Guarantee of an interview for an available job for every lone parent
- £400 training allowance to help employers train up "fast-track" recruits
- Extending the days that lone parents can continue to receive benefits after starting work from 15 to 42
- Back-to-work tax credits worth £40 a week, or £60 in London
Young people who left school this summer are also set to be offered a place on a pre-apprenticeship course or in college by the end of this month.
Mr Brown says that, despite 340,000 more young people being in work than in 1997, he believes there are still too many over-16s who are not in education, training or work.
He said he wanted to see the numbers of apprenticeships available growing from 250,000 now to 500,000 over the next 10 years.
But Chris Grayling, the Conservative shadow work and pensions secretary, accused Mr Brown of "conveniently forgetting" that the vast majority of new jobs created in Britain since 1997 "have gone to people moving into the UK from other countries".
"The reality is that one in five households in Britain is workless and youth unemployment is higher than it was 10 years ago," he said.
"Mr Brown's claims about a British job for every British worker are all about grabbing the headlines and bear no relation to what's really going on in Britain today."