What is a Geographic Differential?

Geographic Differential definition

Geographical differentials are differences in pay for similar or identical jobs that are based on variations in costs of living and labour markets in particular geographic regions. Large cities, notably London, often include a ‘weighted’ portion of the salary, typically a percentage of the basic salary, as a supplement to cover the increased costs of living in that city.

Geographical differentials are a subset of wage differentials, which attempt to analyse the link between salary and the negative aspects of a job. Compensation differentials are offered to entice a worker to take a more unpleasant job over more pleasant options.

Interest-free season ticket loans, for example, are an incentive designed to mitigate the negative nature of a morning and evening commute.