I literally just left my job today, because they refused to give me a raise due to my location (and pay level). I got a much better offer in a slightly more expensive location (I can move).
It makes no sense to tie pay to location when you aren't competing solely in that location. Your employees can move to places with better pay and benefits too (or companies that don't strictly tie compensation to location).
People have spouses, children, families, responsibilities. Not everyone can just pick up and move. Also, not everyone wants to move - some are very happy in a given location for various tangible reasons.
It is so trivial now for companies to source talent from anywhere on the globe that the days of employees negotiating salary based on location are pretty much over. You are competing at a global level now.
It's not entitlement to want a fair share of the value you create.
At the moment I make a decent amount of money for where I live, but at the same time, cost of living has gone up while my wage has stagnated. I'm very tempted to bite the bullet and look for a job in e.g. the Amsterdam region again, hopefully I can negotiate WFH conditions and the pay will be significant enough to warrant spending the extra time in the commute (once the 'rona is over, of course).
The idea that employers should, as a principle, seek to pay the least possible for the best work, is predicated on the idea of a free market, which is a theoretical construct. It requires a lot of things, like perfect information on all sides, and externalities being properly priced in, that don't actually exist in the real world.
https://elsajohansson.wordpress.com/2017/09/13/what-does-a-w...