[muro]

The company doesn't pay cost of living, but cost of labor. Living in an expensive place doesn't imply high salary (case in point - London). Thus, if another employer pays better, people leave and your current employer needs to pay accordingly. If none pay better, what option do you have?

[jbay808]

For a real example, one of my friends worked at a FAANG in Vancouver. When he asked for higher pay, the FAANG told him he would need to move to Seattle or else, by internal policy, they wouldn't be allowed to pay him more.

So instead of working-from-home in Vancouver, he moved 200 km south to work-from-home in Seattle, and now they pay him more. (Cost of living is lower, too.)

Strange, if you ask me.