In 2019 the OECD average tax wedge for the single worker earning the average wage was 36.0%, a decrease of 0.11 percentage points from 2018 and the sixth 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.

The OECD average tax wedge decreased for the single worker in 2019, although the tax burden decreased in only 17 out of the 36 OECD countries. Across the board, with the exception of Lithuania, the decreases in the tax wedge were small at less than one percentage point. The largest decrease was in Lithuania (3.43 percentage points), where the implementation of a major policy reform involved a significant reduction in employer SSCs, with most of this reduction being replaced with an increase in the tax burden of employees and a corresponding increase in their gross wages.

Despite the decrease in the OECD average, 19 OECD countries experienced an increase in the tax wedge on the single worker earning the average wage in 2019. The increases in the tax wedge were even smaller than the decreases observed and did not exceed half a percentage point in any country, except for Estonia (1.08 percentage points). In Estonia, an income related tax allowance decreased due to an increase in average wage earnings between the two years.

The OECD average tax wedge for the one-earner couple also continued its decrease, for the fifth consecutive year. It declined by 0.07 percentage points to 26.4% in 2019. That year, the tax wedge for the one-earner couple decreased in 17 OECD countries, with the largest decreases seen in Lithuania (4.24 percentage points), Austria (3.67 percentage points) and France (2.34 percentage points). The tax wedge for this household type was steady in Chile and increased in the other 18 OECD countries. There were increases of greater than one percentage point in Slovenia (3.32 percentage points), Poland (2.62 percentage points), New Zealand (1.55 percentage points), Estonia (1.37 percentage points) and the Czech Republic (1.03 percentage points).

The report also contains a Special Feature, which draws on the Taxing Wages framework to examine – for a selected group of countries – whether differences in tax treatment across worker types create tax arbitrage opportunities. Tax systems may give rise to arbitrage opportunities either for firms in their selection of the type of labour contract offered to workers (e.g., a full-time employment contract versus a contract for services) or for individuals in their choice of organisational form (e.g., standard employment versus self-employment). To the extent that such arbitrage opportunities are large, tax systems may be encouraging the adoption of certain tax-advantageous employment forms. This can undermine the equity of the tax system, while also threatening levels of public revenue.