In 2018 the OECD average tax wedge for the single worker earning the average wage was 36.1%, a decrease of 0.16 percentage points from 2017 and the fourth consecutive annual decrease. The tax wedge measures the difference between the labour costs to the employer and the corresponding net take-home pay of the employee. It is calculated as the sum of the total personal income tax (PIT) and social security contributions (SSCs) paid by employees and employers, minus cash benefits received, as a proportion of the total labour costs for employers.
Although the OECD average tax wedge decreased for the single worker in 2018, this was driven by large decreases in four countries, even though nearly two-thirds of OECD countries experienced a small increase. The four countries that experienced significant decreases were: Estonia (-2.54 percentage points), the United States (-2.19 percentage points), Hungary (-1.11 percentage points) and Belgium (-1.09 percentage points). These changes were due to income tax reforms in Estonia and the United States and to reductions in employer SSCs in Hungary and Belgium.
Despite the decrease in the OECD average, 22 OECD countries experienced a slight increase in the tax wedge on the single worker earning the average wage in 2018, although no country had an increase exceeding half a percentage point. In addition to the four most significant decreases in Estonia, the United States, Hungary and Belgium, ten other OECD countries also had small decreases in the tax wedge on the average worker in 2018 (less than one percentage point).
By contrast, the OECD average tax wedge for the one-earner couple has remained steady since 2017, at 26.6%. In 2018, the tax wedge for the one-earner couple decreased in 16 OECD countries, with the largest decreases seen in New Zealand (4.52 percentage points), Lithuania (2.50 percentage points), the United States and Estonia (both 2.41 percentage points) and Hungary (1.13 percentage points), Belgium (1.09 percentage points) and Greece (1.08 percentage points). The tax wedge for this household type was steady in Chile and increased in the other 19 OECD countries. With the exception of Poland (10.33 percentage points as a result of reduced child benefit payments), no country had an increase of over 1 percentage point.
The report also contains a special feature examining the taxation of the single worker at the median wage in OECD countries. The median wage provides a more consistent comparison than the average wage across the wage distribution in OECD countries, but is difficult to calculate due to data availability. In 2017, the OECD median worker earned 80.8% of the average wage and consequently had a lower tax burden, at 34.3% of labour costs compared to 36.2% for the average worker. Although the tax wedge is lower for the median wage earner than for the average wage earner in all OECD countries except Chile and Hungary, the difference in tax wedge is not significant in most countries.