Rewarding hard work

Following on from the previous post about attitudes to economic inequality, here's an example of how the interests of the poor and the middle are much more closely related than many people realise:

One criticism of the welfare state is that once you include tax credits, child benefit, housing and council tax benefit and so on, a lone parent who is not in paid employment and has two children has roughly the same income as a single person who works and gets the average wage.

One possible reaction to this is "that's a disgrace, and it shows that benefits are too high." This is the one which you will read a lot in the newspapers.

But another is "that's a disgrace, and it shows that wages for the average worker are too low."

Which of these - prioritising cutting benefits or raising wages for middle income workers - is more likely to help improve people's quality of life and make sure that hard work is properly rewarded?