Right, but if they don't produce more than the "normal Wichita salary" then you probably shouldn't hire them. If they produce enough value to be worth $150,000 per year let's say, then you pay them that. If they don't, you shouldn't pay them that much whether they live in SF or Detroit.

If they do produce enough to be worth $150,000, why pay them less just because they live in Wichita? Supply and demand, sure, but it just seems odd to me to explicitly say that you're paying less if someone lives outside of a major metropolitan area. I prefer to be (or think that I am) paid based on the value I produce (value pricing) rather than what it costs to keep a roof over my head (cost pricing). Whether or not this is the case also influences my understanding of how a company thinks about me.