Are Geographic Pay Differentials Becoming Outdated in a Hybrid World?

By Joe Farris

Years after COVID-19 reshaped the way we work, companies are still wrestling with a deceptively simple question: 

How much should location matter when it comes to pay?

During the height of remote work, geographic pay differentials, once a cornerstone of compensation strategy, seemed to be collapsing. Employees left expensive hubs like San Francisco, Boston, and New York for places like Utah, Texas, and Idaho. Employers scrambled to determine if and how to adjust compensation, and we saw a range of approaches, from maintaining multiple pay zones reflecting local cost of labor stands all the way to paying all employees as if they sat in the most expensive locations in the country.  

But now, as return-to-office mandates gain traction, the picture is changing again.

From Cost of Living to Cost of Talent

Traditionally, geographic pay differentials were based on the cost of labor in different markets. A software engineer in Silicon Valley commanded a premium not just because groceries cost more there, but because the concentration of top employers and top talent created competitive pressure.

When remote work took off, that premium narrowed. Employers created “remote bands” or even national pay ranges. For a while, it seemed like the old model of local differentials might fade into history.

But the reality is more nuanced. Cost of talent doesn’t disappear just because people move. Places like Salt Lake City’s “Silicon Slopes” emerged as attractive hubs, with lower costs, good universities, and pro-business environments. Companies flocked there, but the labor pool is only so deep. At some point, if you need specialized biotech or engineering talent, you may still find yourself looking back to Boston or the Bay Area.

It’s also worth noting that many of the “new hubs” created during the remote migration are no longer as inexpensive as they once seemed. When talent and employers moved in, housing markets tightened, infrastructure stretched, and costs rose quickly. Cities like Austin and Salt Lake City, once touted as affordable alternatives to coastal hubs, have seen housing prices and living expenses surge. The cost advantage that drew employers in the first place has narrowed, making the question of pay differentials even more complex.

The Return-to-Office Effect

Now, return-to-office trends are bringing geographic considerations back into play:

• Vacancy rates in San Francisco and New York are starting to decline. Even in tech-heavy markets, people are returning.

• Employers face a strategic choice: follow talent into new hubs that have developed post-COVID, or pull talent back into traditional centers of gravity.

• Employees face a personal choice: if pay is no longer equalized nationally, does it make sense to stay in a lower-cost city, or relocate for higher pay and career density?

This raises an important question: Will geographic pay differentials re-expand to their pre-COVID levels, or has the remote era permanently reshaped the landscape?

What We’re Likely to See Next

The answer most likely isn’t binary. Several trends are already emerging:

1. Hybrid Differentials. Employers are experimenting with models that recognize both national pay bands and local premiums. A Bay Area engineer may still earn more than their Utah counterpart, but the gap isn’t as wide as before.

2. Talent Density Over Cost of Living. The highest pay is clustering not just in expensive cities, but in places where talent and employers both concentrate.

3. Lagging Data. Compensation surveys often take time to catch up. Market movement in 2025 may not be fully reflected in published data until 2026. That makes it critical for HR leaders to watch trends closely rather than rely on static benchmarks.

4. Evolving Hubs. Emerging tech hubs like Salt Lake City and Austin will remain important, but their growth has natural limits. Companies may need both local presence and remote strategies to meet talent needs.

What This Means for HR Leaders

For HR and Total Rewards leaders, the implication is clear: don’t treat geographic pay as a settled question.

Now is the time to:

• Re-examine your pay philosophy, and specifically your approach to geographic pay differentials, in light of your location and workforce strategy (remote, hybrid, office-based).

• Regularly monitor cost-of-labor differentials and ask whether your structure reflects where the market is heading, not just where it was last year.

• Balance fairness, competitiveness, and practicality. Employees will notice if your approach feels out of step with either the market or their lived experience.

A Space to Watch

Geographic pay isn’t dead. It’s evolving. As return-to-office mandates grow, employers will need to strike the right balance between national consistency and local competitiveness.

The winners will be those who keep their eyes on where talent density and employer demand intersect, and adjust pay practices accordingly.

At Nua Group, we help companies design pay strategies that align with these shifting realities, ensuring that compensation supports both market competitiveness and long-term talent strategy. Need help with your pay strategy? Get in touch! We’d be happy to help.