Everything comes down to each parties BATNA [0]. If the employer values on site employees more than remote then they will offer less (all other things being equal), if they value remote workers as being more valuable then they will offer more. The same applies to the employee.

The cost of living of where you live is not the employer's concern. Everything comes down to supply and demand.

0. https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiat...