The design of income taxes can influence incentives for workers to enter the labour market and the nature of their participation. Differences in how men and women engage with the labour market mean that personal income taxation can have differing impacts on men and women.
Women are more likely to work part-time or in non-standard work, receive a lower salary on average than men, and are less likely to participate in the labour force. Women are also more commonly second earners in a household, making up more than three-quarters of second earners in almost all OECD countries. The impact of tax systems on second earners is well documented, with many tax systems providing disincentives for second earners to enter or re-enter the labour force. These impacts may arise either because of joint taxation, which results in second earners paying higher marginal tax rates on their income, or because of the withdrawal or removal of family-based tax credits or allowances when the second earner enters the labour force.
For these two reasons, the net personal average tax rates for second earners (the combined personal income tax and employee social security contribution burden net of cash benefits) are higher than for single individuals earning the same amount in the majority of OECD countries (Figure 1). The difference is even greater for families with children, due to higher levels of child-related benefits – and exacerbated still further when non-tax costs such as childcare are included.
A second gender-related difference in labour force participation is that women are considerably more likely to work part-time than men. On average, women make up nearly two-thirds of the part-time labour-force, compared to only one-third of the full-time labour force. Across the OECD, women are three times more likely to work part-time as compared to men (Figure 2). The taxation of part-time work therefore has important gender implications.
A recent report on The Taxation of Part-Time Work shows that tax systems generally reduce gender inequities between part-time and full-time wages, while creating disincentives for part-time workers to move to full-time work. As part-time workers (predominantly women) earn considerably less than full-time workers (predominantly men) – on average, less than 40% (39.9%) – the progressivity of the tax system reduces the differential in post-tax incomes, with positive gender implications. Similarly, the gap between male and female average part-time earnings is reduced by taxation by around one percentage point, from 10.2% to 9.2%. However, the progressivity of the tax system, together with the removal of tax credits and allowances when a part-time worker enters full-time work, can lead to high marginal effective tax rates (METR) on the transition from part-time to full-time work. These high METRs can result in a part-time work trap, by creating a disincentive to move from part-time to full-time work. Furthermore, in all but five countries, the average METR on the transition from part-time to full-time employment is the same or higher for the second-earner than for the single worker (Figure 3).
