Geographical differential is the difference in pay given to employees who work in different geographical areas. The rationale behind this is that employees who work in areas with a higher cost of living should be paid more than those who work in areas with a lower cost of living. This is because employees in high cost of living areas will have a higher cost of living expenses, and thus need to be paid more in order to maintain their standard of living. There are a number of factors that can affect the cost of living in an area, such as the cost of housing, transportation, and food.