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This does not seem too bad. The drop in the neutral wire is caused by the other loads on the wiring. It is quite common to have 2-5% drop on the wiring (round trip) which works out to 1-2.5% per conductor.
The term ground or earth usually means a common return path in electrical circuits. The terms Earth return and ground return are also common.
In electrical engineering, the term ground or earth has the following meanings:
1. An electrical connection to earth. The part directly in contact with the earth (the earth electrode) can be as simple as a metal (usually copper) rod or stake driven into the earth, or a connection to buried metal water piping. Or it can be a complex system of buried rods and wires. The resistance of the electrode-to-earth connection determines its quality, and is improved by increasing the surface area of the electrode in contact with the earth, increasing the depth to which it is driven, using several connected ground rods, increasing the moisture of the soil, improving the conductive mineral content of the soil, and increasing the land area covered by the ground system. This type of ground applies to radio antennas and to lightning protection systems.
2. In a mains (AC power) wiring installation, the grounding is the wire that carries currents away under fault conditions. This power ground grounding wire is (directly or indirectly) connected to one or more earth electrodes. These may be located locally, be far away in the suppliers network or in many cases both. This grounding wire is usually but not always connected to the neutral wire at some point and they may even share a cable for part of the system under some conditions. The ground wire is also usually bonded to pipework to keep it at the same potential as the electrical ground during a fault. Water supply pipes often used to be used as ground electrodes but this was banned in some countries when plastic pipe such as PVC became popular.
3. In an electrical circuit operating at signal voltages (usually less than 50 V or so), a common return path that is the zero voltage reference level for the equipment or system. This signal ground may or may not actually be connected to a power ground. A system where the system ground is not actually connected to earth is often referred to as a floating ground.
4. An electrical connection to the inside surface of a Faraday cage. Any excess charges deposited on the inner surface of a Faraday cage will migrate to the outer surface of the cage, where they can produce no electric fields within the enclosure. For this reason, the inside surface of a Faraday cage behaves like an infinite sink for electrical charge from the perspective of objects within. Even if the Faraday cage itself is not connected to the Earth, the inner surface of the cage can be used in place of an earth connection.
5. A ground conductor on a lightning protection system used to dissipate the strike into the earth.
Ground or earth in a mains (AC power) electrical wiring system is a conductor that exists primarily to help protect against faults and which in normal operation does not carry current.
The term "ground" is used in Canada and the U.S.; the term "earth" is used in most of the rest of the English-speaking world. They are used synonymously here.
Neutral is a circuit conductor that carries current in normal operation, and which is connected to earth.
* In a polyphase or three-wire AC system, the neutral conductor is intended to have similar voltages to each of the other circuit conductors, and similar phase spacing. By this definition, a circuit must have at least three wires for one to serve as a neutral.
* In the electrical trade, the conductor of a 2-wire circuit that is connected to the supply neutral point is also referred to as the "neutral". This is formally described in the US and Canadian electrical codes as the "identified" circuit conductor. If the entire system is only single phase then the current carrying conductor that is tied to earth is still a neutral by this definition.
The NEC and Canadian electrical code only define neutral as the first of these. In North American use, the second definition is used in less formal language but not in official specifications. In the UK the IEE definition is a conductor connected to the supply system neutral
You have to think about why the voltage is there to begin with. When an appliance is drawing current, that current flows from the hot terminal and returns through the neutral. There is a voltage drop along the neutral wire and that voltage will rise with the current level in the neutral wire. It is supposed to be a small voltage drop, which is why there are requirements for wire thicknesses depending on length of circuit run and current level. Increase the gauge of the wire if you want a lower voltage to appear on the neutral. Since there is no current flow (hopefully) in the ground wire, the voltage on it will be equal to ground. Neutral and ground are bonded together at one point in the system, usually at the meter but sometimes at the first breaker box. So by measuring the voltage between neutral and ground, you are measuring the voltage drop along the piece of neutral wire between the outlet and the bonding point.
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