From a business perspective I don’t blame them. Many salaries are based upon the area you live in. For example salaries in the NY area are considerably higher for the same work in Florid due to cost of living. This will get interesting to see how companies address this issue for telecommuters.
There are pay differential calculations for civil servants in various cities. I remember at the time the Washington DC came nowhere close to meeting the actual housing cost difference so moving to Washington was seen as bad for your wallet, bad for your life, good for your career if you can get a quick promotion or two and then move back home.