People are paid by utility, but it isn't the only factor. You don't pay a line cook to be a surgeon. Utility is obviously the dominant factor.
> A remote worker in Phoenix doesn't have as many options as a remote worker in NYC when it comes to switching jobs a getting a high salary. So the company pays the NYC dev more since they need to pay more in order to retain that person.
So the premise of this is that these people are working remotely... why wouldn't the Phoenix person have the same opportunities to switch jobs as the NYC person if both are able to work remotely? That's kinda rejecting the premise of the scenario.
Utility will put a cap on whether the business can exist. Employers won't willingly pay above your utility. And if they could get you to work for free they sure would.
The Phoenix person and the NYC person don't have the same opportunities because the huge majority of tech jobs still don't support fully remote positions. So the Phoenix person has all the fully remote jobs (many of which adjust salaries down) and all the local Phoenix business. And the NYC person has all the fully remote jobs and the gazillions of local NYC jobs.
Your employer doesn't know that you'd never want to work for a local NYC company or whatever, so they operate under the assumption that they have tighter competition for your labor.
Some day, if lots and lots and lots of remote work is available, this effect will shrink and that will either pull remote salaries closer together or people in LCOL regions will still be willing to accept lower pay and the HCOL people are in trouble.
Supply and demand is the dominant factor in pricing. Utility is barely quantifiable in most cases. A personal computer has immense utility, a Rolex has very limited utility. The latter is in very short supply and in high demand, that's why its prices are high.
Now let's take a software engineer at Uber versus a nurse at a random hospital. The software engineer is part of a scheme that keeps destroying capital, his utility is negative. The nurse on the other hand may prevent decades of lives lost every day. It's not that hard to become a nurse though - more people are capable and willing to do it, so the supply is large. The cherrypicked software engineer on the other hand, is quite rare.
> why wouldn't the Phoenix person have the same opportunities to switch jobs as the NYC person if both are able to work remotely?
They have the same "fully remote" options, but not the same "onsite" opportunities. If you work remote, of course you're going to want to optimize your cost of living, because you'll be competing with people who will do the job for less money.
> A remote worker in Phoenix doesn't have as many options as a remote worker in NYC when it comes to switching jobs a getting a high salary. So the company pays the NYC dev more since they need to pay more in order to retain that person.
So the premise of this is that these people are working remotely... why wouldn't the Phoenix person have the same opportunities to switch jobs as the NYC person if both are able to work remotely? That's kinda rejecting the premise of the scenario.