If you're the most attractive employer in your market, your idea is completely valid. But, it gets significantly more complicated when you're trying to compete for top engineering talent with all the hottest startups. If your company is opening to hiring remote workers, you get access to people who don't want to (or can't) move to your market.
I see your point. But in that case, why not just pay somewhat more, but not SF-level, salaries to the top talent in remote locations? Its a win-win for both - the employer and the talented folks.
Anecdotally, I heard this is what Google and Uber did in Pittsburgh.
That's often the case in practice. In locations with low cost of living and relatively limited opportunities for tech employment, remote work for a distributed team can pay quite well relative to local options.
