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Tax Wedge on Labour

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The measure of the tax wedge on labour presented in this section is defined as the difference between the salary costs of a single "average worker" to their employer and the amount of net income ("take‐home‐pay") that the worker receives. The taxes included are personal income taxes, compulsory social security contributions paid by both employees and employers, as well as payroll taxes for the few countries that have them. The amount of these taxes is expressed as a percentage of the total labour costs for firms, i.e. the sum of gross earnings, employers' social security contributions and payroll taxes. The "average worker" is taken to represent a full‐time worker in industry sectors C‐K of the International Standard Industrial Classification (ISIC) of All Economic Activities, Revision 3.

Document Type: Review Article

Publication date: 2007-02-01

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