If the job requires that they be in a particular location, paying them based on that is fair, and very common. For example national services in the UK do that (

If the job requires that they be in a particular location, paying them based on that is fair, and very common. For example national services in the UK do that (such as post office), because if you're a postman/nurse/whatever in one place, you can't chose to live anywhere. However if you don't care where they live, they should all be paid equally - a person living in Thailand doesn't deserve less money than a person living in NYC, and just because they don't need as much money, doesn't mean they don't deserve it.