To pay a worker less because they chose to, say, move back to their hometown to take care of their relatives puts a sour taste in my mouth. Reducing people's pay because they moved to another location makes no sense to me.
Gitlab's pricing is the same no matter what city the client is located. If the employee is able to provide the resources needed charge this price to the customers then the employees should get the same pay as any other employee.
Imagine busting your chops to close a complicated project on time only to learn that the junior two postal codes over is paid more than you to do simple tasks.
I would change employer.
In fact, have been in such a situation before. The home office was outside of the city and they later opened an office there. The new city hires were paid more than everyone else at the company. The result was that the company lost all their strong players.
I am now working even further from the city for that same salary they gave the city employees.
Hiring full-time remotes in a major way is still a relatively new practice, so we'll see how it all shakes out. It may very well be that actual pay-by-value takes root, but I wouldn't hold my breath. Pricing and markets are curious things, and there is huge inertia.
Since everyone is paying according to geographic location, companies who don't will be at a cost disadvantage to their competitors - now they can play arbitrage, and pay just slightly more than market rate in hope of attracting the best Engineers, and some do, but mostly businesses are conservative and just want to pay market-rate for their various functions, and save their "innovation energy" for their main product.
IMO asking this question is akin to asking something like "why aren't developers paid as much as doctors?", or, "why do realtors take a 3% cut instead of 2 or 4?"