"As little as they can get away with, not how much value you create" sounds like a recipe for exploitation and dissatisfied employees. Which I suppose is exactly what we have.
It would also seem to create a strange incentive for people to move to places where the cost of living is higher.
If you are in say NYC and a company is trying to hire specifically in NYC you can expect to be paid enough to live in NYC. It doesn't matter that the company could get the work done for 1/4 the cost if they were OK with the work being done in Smallville, Kansas. You aren't competing with the Smallville programmer. Your only competition also demands NYC level pay.
When the company doesn't care where the work is done other than broad limits like "should be in the US" then you are competing with the Smallville programmer for the job. And with some dude in Hooterville. And in Lake Wobegon. And in Mayberry. You are in a market with a lot of people who will accept less than NYC salary.
Actually this isn't all that different than how companies handle pay within metropolitan areas now. For example a company in downtown Los Angeles isn't going to have a different pay scale for their employees that live in Compton and the ones that live in Malibu.
If everyone goes remote-first someday, market rates everywhere will equalize, but this hasn’t happened yet.
This is because FAANG refuse to benchmark against finance, because it would cost them too much money. Like they wanted me to move from Dublin to London when I was at one, but the salaries were identical, but the living costs definitely were not (salaries were the same, but a FAANG salary in Dub puts you much closer to the top of the local income distribution than one does in London).
If they're from a real poor country, maybe this practice will help their economy (not that that's a reason to do it necessarily).
My feeling is when people say location shouldn't matter then mean as long as the location is in their country.