"People currently expected to be searching for paid employment could instead do volunteer work for the same number of hours they are obligated to be in paid employment."
It said allowing that would require a letter from support and six-monthly updates from the organisation the beneficiary was volunteering for "to ensure they are making a positive contribution."
It said informal work was an opportunity for people to get the skills needed to get a paid job and volunteers workers should be recognised for work they did in the community and safe guarded from exploitation..
"We must value volunteers by making sure that voluntary work creates opportunities and is not simply a source of free labour."
In a related proposal, the report recommends reviewing the requirement for single parent beneficiaries to look for work once their child is three years old, saying parents and unpaid carers were "increasingly undervalued."
"Current policies create pressure for parents to focus primarily on paid employment from when their children are very young. Parents who want or need to stay at home should feel supported to do so."
National's welfare reforms require single parents to look for part time work when their youngest child turns three and full time work once the child is at school. Beneficiaries who have a further child while on the benefit must look for work when that child turns one.
Other proposals included removing secondary tax and reassessing the stand down period before people who lost their jobs could get a benefit.
The reports also proposes offering six weeks of free training for workers who lose their jobs because of technological advances such as automation.
Labour's Grant Robertson said research had shown almost half of the jobs in New Zealand could be at risk of automation.
Robertson said targeted training for workers who lost a job because of technology advances was "essential."
"This is particularly important for older workers who have been in same profession for a long period of time."
The report's recommendation was for six weeks' initial training which could be added to in partnership with employers.
He said it was clear that "active and capable" government was needed to face the threats of the future, working with unions and business.
The Future of Work was a two-year project involving Labour, the unions, employer and business groups.
The report states that the days of a hands-off government being able to deliver a secure future for workers was over.
Other recommendations included a levy on businesses which did not train New Zealand workers in industries with skills shortages which relied on foreign workers.
It also proposes bonus payments for employers for apprenticeships completed, abolishing secondary tax, and recognising volunteering as work.
