If the Welsh town of Merthyr Tydfil sits anywhere in the thoughts of Britain's elites, it is probably as a fuzzy byword for very bad things indeed: long-term economic decline, welfare dependency, lives so far from the London dream that to some people, they look grimly exotic. One in four of the adult population is on benefits. For every job vacancy there are 84 local people without work. If you travel up the A470 to take a look you'll find a case study in decades-long de-industrialisation: behind a retail park and T-Mobile call centre lurk problems so ingrained as to often seem beyond hope.

Last year, Sky News ran a programme called A Town Like Merthyr, hyped as "a town that has lost the will to work". A month later, a Newsnight interview found Iain Duncan Smith claiming that the town's unemployed were too "static" and "didn't know [that] if they got on the bus an hour's journey they'd be in Cardiff and they could look for a job there".

Norman Tebbit's bike, it seemed, had been replaced by a bus. This was more than a cheap shot aimed at the next day's headlines: it summed up the central logic of the government's welfare reforms and the local social implosions they will soon sow.

On Tuesday Merthyr College held a one-day conference titled Putting our heads together, which heard from Steve Fothergill, an academic from Sheffield Hallam University, the co-author of a new report entitled Tackling Worklessness in Wales. It is a sobering read, and not just for people interested in Welsh affairs: for Merthyr, Ebbw Vale and Port Talbot, you can just as easily read Bolton, Hastings, Paisley or Preston. That point applies particularly to what Fothergill has said about Duncan Smith's benefits revolution: "The government's welfare reforms are based on the assumption that there are plenty of jobs for people to go to. In most of Wales this seems wide of the mark … the consequence is likely to be widespread distress and … financial hardship."

In Wales as a whole, 180,000 people currently claim incapacity benefits. As most of those people are tested for their supposed ability to work, Fothergill expects 45,000 to be thrown off the benefit. Of those, 14,000 are likely to be quickly excluded from the benefits system altogether. In time another 17,000 are also likely to lose all their benefits, as means-testing begins after their first year on the new employment and support allowance. Bar an economic miracle, by 2014-15 that will mean about 30,000 people in Wales with incomes that will have fallen by about £90 a week, with about the same number again to lose out as they are placed on other benefits. "That's a big number," he tells me. "And if you apply that model to Britain as a whole, you're clearly talking about a huge number of people." Fothergill is soon to do exactly that: work on the impact of welfare reform on the rest of the UK will appear in the next six months.

What's round the corner is obvious enough. As benefits are slashed, what little life there is in some local economies will be further sucked out, taking more jobs with it, and thus making the difficulty of finding work even greater. The resulting hardship and distress hasn't even begun to reveal itself. And as all this happens and the cuts continue to bite, the kind of self-evident truths that mainstream politics tries to deny will become even more obvious.

Try these. The root cause of most worklessness, strangely enough, is an continuing shortage of work. When ministers yak on about handsome vacancy rates in every corner of the country they mistake the standard turnover – whereby around a third of the workforce annually changes jobs – for some great imaginary employment gap which the feckless and lazy stubbornly refuse to fill. In areas where unemployment is apparently endemic, you don't tend to find large numbers of migrants (as the Sheffield report notes, a large number of Welsh areas, "especially in the Valleys, have attracted particularly low numbers of migrant workers"), so contrary to another IDS pronouncement the idea of the workless staying idle while Poles take all the jobs won't wash either. Oh, and one other thing: as the report concludes, in places where the private sector largely refuses to go, if you're going to convincingly deal with labour market failure you'll probably have to spend a reasonable amount of public money.

The other day I watched that Duncan Smith Newsnight interview again, as he served notice of what was to come. "There is a tendency of people to say, 'There are no jobs'… Even right now, coming out of the recession, there are jobs, and they're pretty well evenly spread across the country… The jobs don't come to you: sometimes you have to go to the jobs." On and on he went, sounding either foolish or deceitful: a man marooned in the 1930s, full of self-righteousness and howling contradictions.

Now as then, in too many places, there is hardly any work at all. Britain's economy is as segmented as ever, and to repeatedly kick people into local labour markets that barely exist is not just cruel but stupid. They seem to know that in south Wales. Is it such a stretch for Westminster to listen?