Unemployment and the underground economy in Australia

Despite government attempts to reduce welfare benefit fraud in Australia, participation in the underground economy by those claiming to be unemployed continues. Although there exists considerable international literature on the size of the underground economy, academics and public officials alike have paid little attention to the extent of participation in the underground economy by those who claim to be unemployed and in receipt of social security payments. This study provides the first known estimate of how changes in the unemployment rate affect the size and growth of the underground economy in Australia and the likely economic implications this may have for public policy decisions. We find that a number of unemployed Australians prefer to remain unemployed and work surreptitiously in the underground economy, while others, after becoming unemployed and finding legitimate employment, prefer to continue working in the underground economy.