compensating differential


The difference in wages offered to offset the desirability or undesirability of a job. If the job is considered undesirable because of elements of unpleasantness or risk, the differential is positive in the form of increased wages to offer incentive to the employee to take the job. If the job is considered especially desirable, the differential is negative in the form of lower wages. Also called compensating wage differential or equalizing difference.

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