Effective tax rates on labour income increased across OECD countries in 2025, especially for households with children, according to a new OECD report.
Taxing Wages 2026 provides cross-country comparisons of the labour tax wedge, which shows total taxes on labour paid by employees and employers, minus cash benefits received by working families, as a percentage of labour costs. A higher tax wedge tends to reduce incentives to work and hire by reducing take‑home pay and increasing employers’ labour costs.
On average across the OECD, the tax wedge for all eight household types examined in the report increased in 2025 to reach their highest level since 2018.
The tax wedge for a single worker earning the average wage increased in 24 out of 38 OECD countries, fell in 11 and was unchanged in 3. Across the OECD, the tax wedge for this household type ranged from 0% in Colombia to 52.5% in Belgium in 2025 (Figure 1) and averaged 35.1% of labour costs, an increase of 0.15 percentage points (p.p.) from the previous year.
Meanwhile, the tax wedge for a single-earner household with two children at the average wage level increased by 0.46 p.p. on average across the OECD in 2025 to 26.2%, rising in 22 countries. The larger increase for this household type implies that the fiscal advantage for working families in the OECD narrowed by 0.31 p.p. in 2025, the second consecutive year in which it has declined.
Taxing Wages 2026 also reveals that wages rose in real terms in 35 out of 38 OECD countries in 2025. Despite the higher tax rates seen in many countries, the post-tax income of a single worker earning the average wage increased in 28 countries.
This year’s report includes a special feature on the statutory progressivity of labour taxation in OECD countries, showing the extent to which effective tax rates vary at different income levels for different household types. Across the OECD, labour tax systems tend to be most progressive for households at lower earnings levels and with children due to the impact of tax reliefs measures and cash transfers.
Tax systems have become more progressive in OECD countries since 2000 for households earning below the average wage while the progressivity of the tax wedge on earnings above the average wage has not changed significantly. OECD countries have tended to reduce taxes on low-earning workers by more than for average- and higher-earning workers over this period.
Further information and individual country notes are available at: https://oe.cd/taxingwages.
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