For most people, labour taxes aren’t their favourite thing. For workers, they mean that less of their hard-earned pay ends up in their pocket; for employers, they add to the cost of hiring. But governments can’t deliver on their commitments to citizens without them: labour taxes account for around half of total tax revenues on average in OECD countries and are a key means of influencing the distribution of incomes, often by requiring people with higher incomes to pay higher rates.
Getting the balance right between raising revenues and income redistribution is not straightforward, especially in a context where fiscal pressures may require more emphasis on the former while political pressure may clamour for the latter. Then there’s the no-less pressing priority of fostering economic growth, an imperative that may not align well with potential disincentives to work associated with high labour taxes.
Thankfully, Taxing Wages is on-hand to help policy makers and other stakeholders navigate this complex terrain, providing detailed information and unique insights on income taxes, social security contributions and in-work benefits across 38 OECD countries. The 2025 edition offers a timely snapshot of how labour taxation is evolving in the turbulent post-COVID period, as real wages recover and inflation eases but the need for higher revenues – for example in response to population ageing – weighs ever-heavier.
Now in its 26th year, Taxing Wages is a trusted reference that helps governments, employers and workers understand how tax systems affect incomes (and income distributions), as well as incentives to work. Perhaps just as importantly, it serves as an essential starting point for discussions within and between these different constituencies.
What is the tax wedge and how does it affect your paycheque?
Taxing Wages shines a light on who pays what level of labour taxes (personal income tax and social security contributions) in OECD countries. It also shows how governments support specific groups through reduced tax rates or tax reliefs.
The indicator at the heart of the report is the tax wedge — the difference between how much it costs an employer to hire a worker and that employee’s take-home pay, including any cash transfers they may receive from the government, expressed as a proportion of the labour cost. Taxing Wages calculates this indicator for eight different household types, which vary by level of income and household composition.
As the tax wedge varies, so too do the incentives to work or hire, depending on how tax systems are structured. Well-designed labour taxes can help balance distributional concerns and revenue needs.
2025 snapshot: what the data shows
According to Taxing Wages 2025, the tax wedge for a single worker earning the average wage was 34.9% of labour costs on average across the 38 OECD countries in 2024. Belgium recorded the highest tax wedge for single workers, at 52.6%, followed by Germany and Austria. At the other end of the spectrum, Colombia was the only OECD country with a 0% tax wedge for the average worker, partly due to the way its social contributions are classified by Taxing Wages¹.
Many countries apply targeted tax reliefs for families with children to help lower effective tax burdens for low- and middle-income households. In some countries, these reliefs have a significant impact on the final tax burden. For example, in four OECD countries (the Slovak Republic, Poland, Luxembourg and Belgium), the tax wedge for a single worker earning the average wage was more than 15 percentage points (p.p.) larger than for a one-earner married couple with two children where the principal earns the average wage in 2024.
That said, pooling together the relative country positions for different household types shows that the overall ranking for the tax wedge is stable across different household types, with some countries occupying the higher positions for the majority of households (like Austria, Belgium, France, Germany and Italy), as well as the lower ones (like Chile, Colombia, Israel, New Zealand and Switzerland).
In 2024, the tax wedge for a single worker earning the average wage rose in 20 out of 38 OECD countries and fell in 15, reflecting continued adjustments in national tax and benefit systems. As a result of these increases, the average tax wedge observed across OECD countries was at its highest level since 2017, when it was 35.1%.
Nevertheless, many workers would still have felt better-off in 2024. Post-tax incomes for an average single worker rose in almost three-quarters of the 38 countries, reversing declines observed in 2022 and 2023, as a recovery in real wages outweighed the (generally small) increases in taxes.
This year’s edition of the report includes a special analysis on the role of tax credits versus tax allowances in shaping the income distribution. Tax allowances reduce the amount of a worker’s income that gets taxed, while tax credits lower the amount of tax the worker has to pay in the end. While both mechanisms reduce the amount of tax a worker pays, the report finds that tax credits are generally more progressive as they are usually targeted at low-income earners and families with children.
What does this data mean for workers, employers and policymakers?
The value of Taxing Wages lies both in its national insights and in its ability to facilitate meaningful international comparisons. Governments draw on the report to track the impact of recent tax policy changes in their own country or abroad on tax rates, and compare them across household types and income levels, as well as to evaluate how disposable incomes and incentives to work may be affected. Meanwhile, citizens and businesses can use the same information to understand how they might be affected by reforms, enabling an informed debate across society.
In a world where cost of living concerns persist, public finances are stretched, and labour markets are rapidly evolving, understanding how tax systems work – and making them work better – is essential. With over two decades of Taxing Wages analysis, the OECD has established a strong track record in providing the evidence base for smarter labour taxation. The annual report has become essential for understanding how tax policy affects household incomes and influences employment trends across OECD countries. Its consistent methodology and cross-country comparisons equip decision-makers with the tools to support inclusive growth, while giving workers and employers a clearer view of how their pay is shaped by tax policy and broader economic trends.
Explore the full Taxing Wages 2025 report and comparative data.
¹All compulsory social security contributions paid to the central governments or to funds under the effective control of the government are included in Taxing Wages’ standard classification. In contrast, the contributions to social security schemes outside the general government sector are not included in the calculations. Further information is included in the specific report on “Non-tax compulsory payments".
