Why _should_ an engineer working from home in Seattle but enjoying all that Seattle and surrounding area have to offer get paid more than some poor bastard who is staying hear his family to help care give in Where-the-hells-ville, AR?

If we move to Beverly Hills should that person get paid more than Seattle? (yes of course Google has to have an office there per these rules)

Should employees who choose to own a car be paid more than someone who uses public transit or their own bike?

You are paid $x in order to produce $y. Assuming our $y's are the same what we choose to spend our $x on should be personal and private.