On 24 May 2022 the OECD published the latest issue of the annual publication Taxing Wages 2022. This sets out details of taxes paid on wages in 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.

Taxing Wages 2022 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.

The latest issue notes that revenue from labour taxation in OECD countries has recovered following the sharp decline during the pandemic. In most of the OECD countries, the support measures introduced during the pandemic have been withdrawn or reduced, and the average wages have increased. Some OECD countries have also introduced reforms to labour taxation.

These developments have led to an increase in the tax wedge in most OECD countries from 2020 to 2021, although the average OECD tax wedge has fallen owing to substantial decreases in just a few countries. In many countries the tax wedge is at a higher level than before the pandemic. The publication looks at the tax wedge for a single worker earning the average wage; a two-earner couple with two children; and for a couple with one earner and two children.

In the case of the single worker on the average wage, the average tax wedge in the OECD was 34.6% in 2021, which represented a decrease of 0.06 percentage points by comparison to the previous year. However, the tax wedge increased in 24 of the 38 OECD countries, and only decreased in 12 countries, while remaining unchanged in two of the OECD countries. The largest increases in the tax wedge, all above one percentage point, were in Finland, the US and Israel. In the countries where the tax wedge increased this was mainly due to rises in personal income tax, either because higher average wages fell into higher tax bands or because more earnings became taxable owing to a relative fall in the value of tax allowances and credits.

The tax wedge for the single worker on the average wage decreased by more than one percentage point in Australia, Latvia, Greece and the Czech Republic. In countries where the tax wedge decreased this was mainly caused by lower personal income tax.

The average tax wedge in OECD countries for a two-earner couple with two children was 28.8% in 2021, a decrease of 0.36 percentage points from the previous year. He tax wedge for this type of household increased in 23 countries, decreased in 14 countries and stayed the same in one country. There were increases of more than one percentage point in the tax wedge for this household type in in Luxembourg, Canada, Lithuania, Austria, Israel and Finland. There were decreases in the tax wedge of more than one percentage point for these households in Chile, the Czech Republic, Greece, Mexico and Australia.

In the case of a couple with one earner and two children the OECD average tax wedge was 24.6%, which represented a fall of 0.42 percentage points compared to the previous year. The tax wedge for these households increased in 27 countries, decreased in 10 countries and remained the same in one country.

For single parent households the average tax wedge was 15.04% in 2021, representing a slight increase by 0.1 percentage points compared to the previous year. For these households the tax wedge increased in 26 countries, declined in 11 countries and remained the same in one country.

The publication includes a Special Feature on the impact of the pandemic on the tax wedge in OECD countries, looking at the impact of the crisis on labour taxation in the OECD, and comparing this with longer-term trends and with the impact of the previous financial crisis.