Segmentation in Practice: Welfare to Work

Few issues facing governments are as challenging—or as important—as reducing unemployment. Unemployment is a stubborn issue in many countries, but the challenges differ depending on the specific country’s economy, employment opportunities, and skills base. Many rich countries are confronted by the twin perils of large budget deficits and high unemployment in the wake of the global financial crisis. (See Exhibit 1.) Developing countries, meanwhile, are just starting to shoulder the responsibility of supporting the unemployed and are searching for where to begin.

Regardless of the differences, all nations face a similar imperative: to find gainful, sustainable employment for as many people as possible in order to drive economic growth, reduce benefit expenditures, increase tax revenues, and maintain social cohesion. Efforts to transform unemployment programs have proven challenging. The U.K. government has implemented no fewer than seven major employment programs over the past 17 years.

For many countries, one response has been welfare-to-work programs, in which advisors meet with job seekers to help them find the right employment opportunities. With over $600 billion spent annually on unemployment benefits and programs within the OECD, improving the system for compensating the unemployed and moving them back to work can save billions of dollars, as well as boosting economic growth. And much as the private sector has widely adopted segmentation strategies—dividing customers into distinct groups and personalizing products and services to match each one—governments are likewise finding that welfare-to-work programs are well suited to the approach.

Acknowledgments

The authors would like to acknowledge Andrew Browning, Alice Bolton, John Rose, and Carmen Roche for their contributions to the development of this report and Amy Barrett for her assistance with writing.