Gen Y may be the best-educated and most technologically-savvy generation yet, but its members may have been lulled into a false sense of security by the mining and property booms.
"I'm not saying we should tell young people not to dream and strive and have ambition - society thrives on that," he said, but "in the current climate" the perfect job may take some time to find.
"My concern is … we are coming out of a period of relatively low unemployment where job-seekers have had greater choices about the jobs they want," he said.
"Twelve months ago employers were struggling to find workers … but in a short time the job market has been turned on its head.
"In tough economic times many people, especially new entrants to the job market with limited experience, have to adjust their thinking and be more adaptive and flexible."
Addressing a Young Labor conference in Sydney, Senator Arbib praised the members of gen Y for their optimism, but urged them to balance their dreams with reality.
"When I left school in 1989, unemployment was more than 10 per cent. It was difficult to even get a part-time job - let alone a full-time job," he said.
"People my age worried about what would happen when they finished school or university. In many professions there weren't the jobs people had trained for.
"During the past 10 years we've been through the mining boom, we've been through the property boom - times were good.
"People began to take employment for granted. Job-seekers had the upper hand. But in the past year the global recession has completely changed the way we think about jobs and the economy."
Senator Arbib said the Rudd Government was doing what it could, with its economic stimulus plan expected to support up to 210,000 jobs. But youth unemployment was at 12.3 per cent and things would get worse before they got better, he warned.
"There is absolutely no doubt that times are tough for people who are unemployed.
"The Government is throwing everything at it and what we're doing is working.
"We are still creating jobs and opportunities, particularly in sectors like aged care, child care, retail, construction and insulation.
"Among a range of initiatives, we've introduced the Learn or Earn package, which provides a training place or apprenticeship for any young person under 25 if they're not in employment.
"Learn or Earn will get them the training they need during the global recession."
Senator Arbib said it would be a disaster if Australia's legacy from these tough times was a generation of unemployed.
In parts of Australia, there were still jobs to be had - even if they were not the first choices of many young people.
"As I've travelled around the country in the past few weeks, employers and job agents are telling me that even in these tough times there is still some work out there," he said.
Senator Arbib urged his audience to follow the lead of Craig, from the Central Coast, who had finished his building apprenticeship, but was laid off because his boss did not have enough work.
Inspired by the Government's insulation package, he started his own business, and now has so much work he has employed his girlfriend and is looking to employ more staff.