Question

What is economic/scientific methodology? Why is it important? Explain how we would follow this methodology for the study of unemployment in the USA? (What steps woyld we go through, what would we look for and why?

Answer 1

Economic methodology is the use of economic reasoning, principles and or scientific methods with respect to economics, to find out the answers of economic problems. Economic principles like trade-off, marginal principle, opportunity cost principle are some of the economic methods to be used. It is important to do so, because the resources are scarce in nature and needs and wants are unlimited. So, to use the resources in an efficiency manner, it is important to use economic methodology. Economic methodology can also be used to study unemployment in the USA. It can be done using different steps:

Step 1: The first step will be to check the labor force participation rate. If labor force participating rate is increasing, then more people are joining the labor force.

Step 2: Review of the change data of weekly unemployment benefits claims. If number of claims, is increasing, then people are joining the labor force, but they are getting unemployed. If unemployment benefits claims are decreasing, then more people are getting jobs. It will cause unemployment to decrease.

Step 3: Also review the number of discouraged workers being created in the economy. Since, a higher decrease in discouraged workers, will make them go out of the labor force, then it will decrease the unemployment rate. So, it is important to look at the U-6 unemployment rate that considers discouraged workers as well as part time workers. So, if U3 unemployment (official rate in the USA) is decreasing, and U-6 unemployment rate is increasing, then number of discouraged workers are increasing in the economy.

Step 4: See the any regulatory changes, technological advances and other structural measures, that can increase the structural unemployment rate in the economy. If it happens, then unemployment rate will increase in the country.

Above steps are to be followed, because it gives the reasons and basis for the change in unemployment rate.