The Cost of Employment in Canada and Abroad

According to the Organization for Economic Co-operation and Development (OECD), Canada  pays less in tax and social security as a percentage of labour costs than many OECD countries. In 2010, the tax and social security burden on labour income for Canada increased slightly for single parents with low earnings and decreased or remained constant for all other household categories.  The Netherlands, Spain and Ireland experienced increases in 2010, while Greece, Hungary and Germany declined the most.

Has the cost of employing people risen? The OECD  seems to think so overall. Its annual report, Taxing Wages, maintains that in 2010 the average tax and social security burdens on employment income rose in 22 of the 34 OECD countries. It looks at the difference between the total cost of employing someone and that person's net take-home pay, including child and family benefits. It defines the "tax wedgeî as "the total taxes paid by employers and employees, net of cash transfers received, divided by the employer's total payroll costs.î  Increased employer social security charges were a factor in those countries for which the tax wedge increased, while lower income taxes and/or wages helped reduce the tax wedge in other countries. 

Table 0.1 in Taxing Wages lists for all OECD countries the total tax wedge for 2010 as percentage of labour costs for a single worker without children at the average wage.  That number was 30.3% in Canada, compared to the highest at 55.4% in Belgium and the lowest, 7% in Chile .

Since 2000 the tax wedge in Canada has decreased for all family types and is lower than the OECD average in all categories of households. It is interesting to note that in Canada, single parents with low earnings have a negative tax wedge ñ they receive more in government transfers than they pay in taxes.  The OECD points out that, on average, all governments that were able to reduce taxes during the past decade directed these efforts at working families, especially those with children and/or low incomes.

The following table from Taxing Wages illustrates the 10 year picture in Canada.

What does this mean? The OECD concludes that, since taxes on wages have an impact on hiring decisions, governments should redirect tax increases to indirect measures such as higher property taxes. They should increase the flow of taxes by reining in spending rather than increasing personal income tax rates. This should give employers reason to hire, and workers the satisfaction of keeping more of what they earn.