Individual Preferences and Union Wage Determination: The Case of the United Mine Workers

Abstract

In order to investigate the preferences of union members and the formation of union bargaining goals, a model of union behavior applicable to the United Mine Workers (UMW) and based on maximization of the expected utility of the median-aged member of the union is developed. The relationships determining the optimal wage-ton tax policy of the UMW are estimated over the 1948-73 period. It is found that (1) union members are quite risk averse with a coefficient of relative risk aversion greater than 2.5; (2) union members discount future benefits at the relatively low rate of 3.5-4.5 percent annually; and (3) union members value a dollar spent on fixed fringe benefits almost 40 percent more than a dollar spent on discretionary income. The latter result suggests that the income tax makes nontaxable fringe benefits a relatively attractive method of compensation. Another result which may be important for national energy policy is that the bargaining goals of the UMW are not very responsive to shifts in the demand for coal.