The reason car prices differ based on location is because it's resource intensive to buy a cheaper car from a distant location, so you only compete with locals on price. This is not the case with developers. Once a worker is remote, there is not much difference if they are 80 miles away or 3000 miles away. The reason for the salary difference is because the company can get away with it, rather than a factor of the local market.

There can certainly be frictions with hiring in different locales. 3,000 miles away can mean a 3-4 hr time difference.

But regardless, there are plenty of engineers in the mid-west willing (and happy!) to work for 50% of what a FAANG is paid in the Bay Area. So it's win-win, the employer gets a cheaper employee and the employee gets a better salary than before.