The paper suggests a novel analytical and empirical framework for exploring labor market behavior and fraud among welfare recipients. First, cheating is introduced in the form of concealing information from social security authorities. Second, the relevance of working hours constraints is tested. Third, we study labor supply as well as participation decisions. Fourth, the model includes estimation of the labor supply decision under uncertainty, subject to a non-linear budget set. We find that when individual decisions involve illegitimate actions such as fraudulent collection of welfare benefits, immoral aspects are perceived as separable from the economic consequences of these actions. In addition, working hour constraints do provide obstacles to welfare recipient’s labor market participation.
