More than a fifth of all out-of-work benefit claims are made by offenders, official estimates have shown.
Some 22% of all out-of-work benefit claims - including Jobseeker's Allowance - open on December 1 2012 were being made by people who had been cautioned or convicted for an offence between January 1 2000 and December 1 2012.
The study of 4.3 million offenders in England and Wales, who were matched to at least one benefit or employment record, shows 41% were claiming benefits one month before they were convicted, cautioned or released from prison.
And more than half of offenders - 54% - released from prison were claiming out-of-work benefits one month after, gradually decreasing to 42% two years after.
The findings come from data shared between the Ministry of Justice (MoJ), the Department for Work and Pensions (DWP) and Her Majesty?s Revenue and Customs (HMRC).
Ministers at the MoJ are pushing rehabilitation reforms through Parliament, which among other measures, aim to set up a "through the prison gate" resettlement service to provide continuous support from custody into the community. It is hoped the changes will work alongside the Work Programme, the Government's welfare-to-work programme introduced in 2011.
Justice Minister Jeremy Wright said: " Employment can make the vital difference between an offender coming out of prison and committing more crime, or coming out and going straight - that is why our crucial reforms to rehabilitation will sit hand in glove with the Work Programme.
"We are committed to delivering long needed changes that will see all offenders released from prison receive targeted support to finally turn themselves around and start contributing to society."
Just under a third of working age offenders - those aged 18 to 62 - who were convicted, cautioned or released from prison in 2010/2011 were claiming out-of-work benefits two years before, the figures show.
This increased to 41% one month before and 44% one month after, but the proportion then decreases gradually to 39% two years after - 7 percentage points higher than two years before conviction, caution or release.
Offenders released from prison were more likely than all offenders to claim benefits in the two years following release from jail - nearly 80% of offenders released from prison in 2010/2011 made at least one claim in that period.
In particular, offenders released from prison were more likely to claim Jobseeker's Allowance (JSA), with 62% making at least one JSA claim at some point in the two-year period.
Employment rates, excluding self-employment, cash-in-hand and some lower paid jobs, were stable for offenders aged 21 to 62 either side of caution, conviction or release from prison, with 38% in employment both one year before and one year after.
A prison spell appears to have a greater short-term impact on the employment rate for adult offenders, which falls from 21% one month before sentence to 17% at release and 19% one month after release, the figures show.
However, one year after release employment rates for adult prison leavers have recovered to 24%, the same level as one year before sentence.
Just over half of working age offenders had at least one start in employment at some point in the two years following their conviction, caution or release from prison in 2010/2011.
However, this falls to 36% when looking at offenders released from prison only.
Around a third - 30% - of working age offenders who were convicted, cautioned or released from prison in 2003/04 had no recorded employment over the next nine years to 2012/2013. However, a fifth of these spent almost all of the next nine years in employment.
Andrew Neilson, director of campaigns at the Howard League for Penal Reform, said the statistics "make clear the detrimental impact prison has on future employment and earnings compared to any other sentence from a court".
He said: "Prison rips people from their jobs and communities - and makes it far harder for people to find work on release. These statistics reinforce the argument that prison should be used sparingly and only when necessary.
"The costs of prison aren't simply the exorbitant sums spent on locking people up. There are also the long-term costs to society, including an added burden on the benefits system."
A DWP spokeswoman said: "More than 1,100 prison-leavers have moved into lasting employment through the Work Programme, helping them turn away from a life of crime and contribute to society instead.
"We know that prisoners are among those hardest to help find work and many will have come from disadvantaged backgrounds, which is why we introduced changes so they receive specialist support from day one of release so they can get into work as quickly as possible."
Juliet Lyon, director of the Prison Reform Trust, said: " Far too many people leave prison homeless and jobless and all too often end up offending again.
"To end the dreary cycle of crime, prison should be reserved for the serious and violent offenders who need to be there and the focus should be on effective resettlement and preparing to lead a responsible life on release.
"Other offenders should be sentenced to unpaid work in the community to pay back for what they have done. Government figures show that these community sentences work better to cut reoffending than a short spell behind bars.
'With just one in five people leaving prison with a job to go to, it is not surprising so many end up relying on benefits on release.
"Only one in 10 employers surveyed in 2010 reported giving a job to someone with a criminal record in the previous three years.
"Government plans to reform the outdated Rehabilitation of Offenders Act have yet to be implemented.
"Job and safe housing searches are virtually impossible in prison without access to computers and insufficient use is made of release on temporary licence.
"More can and should be done to ensure people who have served their sentence have the chance to put their past behind them and lead a law-abiding life."