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Definition of Wage Differential

Wage differential is defined as the difference in wages between workers with different skills in the same industry or between those with comparable skills in different locales or industries. It can also refer to different rates of pay for the same general kind of work, with the variations being the result of differences in performance standards, types of workers and working conditions. As it relates to workers' compensation, wage differential refers to the difference between the earnings of a worker who sustains a work-related injury or illness and the earnings of that worker after their work-related injury or illness.

In most instances, this wage differential is calculated as a weekly wage differential, or the difference in what the worker's average weekly earnings were as compared to what they will be after their work-related injury or illness. For example, a worker was earning $600 a week before their work-related injury or illness. As a result of impairments brought about by the injury or illness, the worker will now only be able to do a job that pays $400 a week. The wage differential is $200, and, in this example, it is a $200 weekly wage differential. In some states the worker would then be entitled to what is known as a wage differential benefit, which would usually amount to about two-thirds of the differential.

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