The advantage in the rate of pay or earnings enjoyed by a higher-paid group of employees over a lower-paid group. Differentials are usually expressed as a percentage figure or, where the differential is very large, as a multiple of the lower rate of pay. Skilled manual workers, for instance, might enjoy a 30 per cent differential over unskilled manual workers, whilst the differential over other employees of senior executives might be equal to ten times the median salary within the organization. Differentials may be calculated within an organization or across an industrial sector or entire economy, and whilst they are usually calculated to examine differences between occupational groups, the concept can also be applied to differences between the sexes, ethnic groups, the able-bodied and disabled, and the more and less educated. From an organizational perspective, it is common to draw a distinction between internal and external differentials (note these may also be called internal and external relativities). An internal differential or relativity is the advantage in pay of an occupational group or grade compared with other occupations or grades within the organization. An external differential or relativity is the advantage in pay over members of the same group working for other organizations. In a large, profitable company, for instance, skilled workers will enjoy an internal differential over the unskilled but may also enjoy an external differential over skilled workers in smaller, less profitable companies. The trend in the UK and the United States has been for differentials to widen both within and between organizations in recent years, as part of the general movement towards greater inequality in the labour market (see winner-takes-all market). Within organizations the earnings of the better paid, and particularly senior managers, have tended to pull away from those of the lower paid, and within occupations there has also been a process of greater dispersion of earnings. [See compensating differential and pay dispersion.]
Subjects: Human Resource Management.