On 29 April 2021 the OECD issued the annual publication Taxing Wages 2021. This publication sets out details of taxes paid on wages in the OECD countries, covering personal income taxes and social security contributions paid by employees; social security contributions and payroll taxes paid by employers; and cash benefits received by workers.

The Taxing Wages publication analyses the tax wedge, which measures the difference between the labour costs to the employer and the corresponding net take-home pay of the employee. The tax wedge is calculated by adding the total personal income tax and social security contributions paid by employees and employers and deducting any cash benefits received by the employee, expressed as a proportion of the total labour costs for employers.

For 2020 the statistics show that the average tax wedge in the OECD countries for a single worker earning the average wage was 34.6%, a decrease of 0.39 percentage points in relation to the previous year. This decrease shows the impact of the COVID-19 crisis on wages and tax on labour. The decrease related mainly to lower income taxes in a number of countries, combined with a decrease in the average wage due to the crisis. It was also influenced by policy changes, such as the tax and benefit changes introduced during the pandemic.

The average tax wedge in the OECD for a one-earner couple with two children was also significantly reduced in 2020. The average tax wedge decreased by 1.15 percentage points to 24.4% in 2020 which is the lowest level recorded for this tax wedge since the global financial crisis.

Impact of the pandemic on the tax wedge in the OECD

Taxing Wages 2021 contains a Special Feature on the effect of the crisis on the tax wedge in OECD countries. This looks at the effect of changes in the labour market on the statistical indicators during the pandemic and distinguishes between the part played by changes in nominal average wages and the effect of the support measures during the crisis.

The report notes that the decreases in country tax wedges for a single worker; a one-earner couple with two children; and a single parent were mainly the outcome of changes in tax policy. The statistics were also affected by the fall in average wages in some countries. In countries where there were increases in the tax wedge these increases were the result of rising average wages, with some influence from policy changes.

The report concludes that only a few of the countries have passed legislation to change the structure of their personal income taxes or social security contributions (SSCs) as a direct result of the pandemic. The main impact of the support measures during the crisis was therefore mainly to reduce the tax wedge for families with children rather than for the single worker.

The report also concludes that the impact on the tax wedge of support measures in the pandemic was smaller than the impact of other policy changes, and accounted for only two-fifths of the reduction in the OECD average for the single parent and the one-earner couple in 2020, and only one-fifth of the reduction for the single worker.